When the expectations of the franchisee, the franchisor and the landlord do not align, franchise-operated retail transactions can be difficult, if not impossible, to close.
Jonathan Neville, a partner in the Real Estate Practice and co-leader of the multidisciplinary Retail Industry Team at Arnall Golden Gregory LLP (Atlanta, Washington), frequently encounters this “disproportionate expectation” problem when representing one of the parties in franchise negotiations.
Mr. Neville knows all angles of the issue because he advises franchisees, franchisors and landlords.
He will be sharing his insights at the ICSC US Shopping Center Law Conference, Oct. 22-25 in Orlando. Mr. Neville will co-lead the workshop “’I Think I Can, I Think I Can’: The Little (or Big) Franchisor/Franchisee That Could (Get the Lease Deal Done).”
Other Arnall Golden Gregory lawyers from the nationally-recognized Real Estate and Retail teams participating at the conference are: Scott Shuman, who will discuss legal difficulties that may arise when a shopping center is redeveloped or repositioned; Scott Fisher, who will address provisions of joint venture agreements that are important in both good times and bad; Abe Schear, who will lead a roundtable talk on equitable considerations when negotiating a guaranty; and Whitney Garrett, who will lead a discussion by young lawyers on what they learned at the ICSC event.
Mr. Neville explained that a start-up franchise should not expect lease rights identical to an established national or international franchisor. As for landlords, sometimes they fail to realize that they need to adjust their lease agreements to suit the prospective tenant, he said.
“The key is to work these things out on the front end because inserting franchisor/franchisee provisions into lease negotiations at the last minute can cause delay,” Mr. Neville said.
Mr. Neville’s four tips for smoother negotiations
1. Find out at the beginning what the franchisor’s lease requirements are. This is important to avoid an 11th hour crisis in which the landlord is hit with surprise deal terms.
2. Exchange understandable, consistent financials. The franchisee might have a strong balance sheet that has not been properly organized. The landlord who struggles to understand the franchisee’s numbers might be unnecessarily reluctant to make lease concessions.
3. Be flexible with lease forms. A nationally known franchisor probably will have more stringent terms than a smaller company, so a landlord who wants to land that high-profile tenant must be open to revisions.
4. Hire a good real estate lawyer. Franchisees, in particular, often will hire general practitioners as compared to specialists because of prior working relationships. While some general practitioners are very skilled in negotiating leases and other franchise-driven real estate transactions, most do not have the experience or industry contacts that can be helpful in negotiating with all parties to a franchise-driven real estate deal.
Journalists and others interested in speaking to one of the lawyers appearing at the conference can contact Kevin Duffy at kevin.duffy@agg.com or 404-873-8131.
ABOUT ARNALL GOLDEN GREGORY LLP
Arnall Golden Gregory, with more than 160 attorneys in Atlanta and Washington, DC, employs a “business sensibility” approach, developing a deep understanding of each client’s situation in order to find a customized, cost-sensitive solution. Selected for The National Law Journal’s prestigious 2013 Midsize Hot List, the firm advises on corporate, litigation and regulatory matters for numerous industries, including business services, healthcare, life sciences, logistics and transportation, real estate, franchising, information services, energy, and manufacturing. AGG is a solutions partner that subscribes to the belief “not if, but how.”
Contacts:
Kevin Duffy 404-873-8131
kevin.duffy@agg.com
