Commercial Real Estate for Franchises: Unique Legal Challenges
- Tom
- Jun 11
- 5 min read
Franchising continues to be one of the fastest-growing business models, offering entrepreneurs the opportunity to operate under an established brand with proven systems. But with growth comes complexity—especially in commercial real estate. Unlike standard commercial leases, franchise real estate deals often involve unique legal challenges that, if mishandled, can jeopardize the long-term viability of the franchise unit.
At The Real Estate Law Firm, we help franchisees and franchisors navigate these complexities to ensure that real estate decisions align with the broader business goals while safeguarding legal interests.
The Importance of Real Estate in Franchise Success
Location is often one of the most critical factors in a franchise’s success. Whether it’s a quick-service restaurant, a retail chain, or a fitness studio, the chosen property must match the brand image, attract foot traffic, and meet the operational needs of the franchise.
However, securing a property involves more than just finding the right square footage—it involves negotiating legally sound agreements that protect both the franchisor’s brand and the franchisee’s investment.
1. Site Selection Control by the Franchisor
Many franchise agreements allow the franchisor to approve or dictate the site where the franchisee will operate. While this helps maintain brand consistency, it can also limit a franchisee’s flexibility.
Legal tip: The Real Estate Law Firm recommends franchisees negotiate reasonable site selection guidelines and retain the ability to conduct their own due diligence. We help ensure that any approval clause is not overly restrictive and protects the franchisee’s financial interests.
2. Use Clauses and Exclusivity Provisions
Franchise tenants often need to ensure they can operate without direct competition in the same shopping center or commercial complex. This is where use and exclusivity clauses become critical.
A use clause defines what type of business the tenant can operate.
An exclusivity clause restricts the landlord from leasing nearby units to competitors.
Franchise agreements often dictate specific use terms, but these need to be reflected in the lease itself. The Real Estate Law Firm assists in aligning lease clauses with franchise requirements while protecting against loopholes landlords may exploit.
3. Personal Guarantees and Franchise Liability
Landlords commonly require personal guarantees from franchisees, even when operating under a corporate entity. This increases personal risk for the franchisee.
Franchisors may also want to distance themselves legally from lease obligations. However, some landlords insist on a franchisor guarantee, especially if the franchisee is new.
Our attorneys negotiate to minimize personal risk exposure, explore alternatives like limited or rolling guarantees, and help franchisees understand long-term liability.
4. Lease Assignment and Exit Strategies
Franchisees may wish to exit or sell their franchise location in the future. But if lease assignment clauses are too restrictive, they may be trapped or lose leverage.
Franchise agreements often allow or require the franchisor to take over the location in case of default or transfer, but the lease must also support this.
The Real Estate Law Firm reviews both the franchise agreement and lease to ensure alignment on assignment rights, helping prevent conflicts between franchisors and landlords.
5. Lease Terms That Outlive the Franchise Term
A common oversight is signing a lease term longer than the franchise agreement. If the franchise license expires or is terminated early, the franchisee could be stuck paying rent for a location they can no longer use as a franchise.
We recommend synchronizing lease and franchise terms and including contingency clauses that allow early termination if the franchise agreement ends prematurely.
6. Build-Out Obligations and Tenant Improvements
Franchisees are typically responsible for completing build-outs to meet brand specifications. This can be a costly and time-sensitive process.
Leases must clearly define:
Who is responsible for construction costs
What happens if deadlines are missed
Who owns the improvements at the end of the lease
The Real Estate Law Firm ensures these provisions are fair, protect the franchisee’s capital investment, and avoid future legal disputes.
7. Co-Tenancy and Anchor Tenant Dependencies
Some franchise concepts depend heavily on anchor tenants to drive foot traffic—think grocery stores or major retailers. If that tenant leaves, the franchise may suffer a significant drop in revenue.
A well-drafted lease should include co-tenancy clauses, allowing reduced rent or lease termination if anchor tenants vacate. We help negotiate these critical protections, especially in shopping center locations.
8. ADA and Zoning Compliance
Franchisees must ensure that the location complies with Americans with Disabilities Act (ADA) and local zoning ordinances. Failure to do so could lead to costly lawsuits or forced relocations.
Our legal team performs zoning and code reviews and ensures that ADA compliance responsibilities are clearly allocated in the lease.
9. Branding and Signage Restrictions
Franchise branding is non-negotiable. Yet, some landlords may impose signage or architectural restrictions that conflict with franchise brand standards.
The Real Estate Law Firm works to secure signage rights and design approvals that align with franchise branding, preventing disputes that delay openings or tarnish brand presentation.
10. Legal Coordination Between Franchise and Lease Agreements
Often overlooked, the lease and franchise agreement must be legally aligned. Conflicts between the two can leave franchisees vulnerable to legal disputes or breach-of-contract claims.
We take a holistic legal approach, reviewing both documents to eliminate inconsistencies, ensure rights are preserved, and that exit strategies are coordinated between landlord and franchisor obligations.
Final Thoughts
Opening a franchise isn’t just a business move—it’s a legal commitment on multiple fronts. Without the proper legal guidance, franchisees risk entering commercial real estate agreements that limit their growth, expose them to unnecessary risks, or clash with their franchise obligations.
The Real Estate Law Firm specializes in commercial real estate for franchises, helping both franchisees and franchisors make informed, strategic decisions. From site selection to lease negotiation and long-term legal protection, our team ensures your location supports—not hinders—your success.
FAQs: Commercial Real Estate for Franchises
1. Why do franchise leases require special legal attention?
Franchise leases must align with franchise agreements and often include specific branding, use, and build-out requirements that differ from standard leases.
2. Can a franchisor force a specific location on a franchisee?
Yes, in many cases the franchisor has final approval over the site. It's critical for franchisees to negotiate reasonable location approval terms.
3. What is an exclusivity clause in a franchise lease?
It ensures that the landlord does not lease nearby spaces to direct competitors, protecting the franchisee's market advantage.
4. Do franchise leases require personal guarantees?
Often yes, especially for new franchisees. A legal expert can help negotiate limits or alternatives to personal guarantees.
5. Can I get out of a lease if my franchise agreement ends?
Only if your lease includes an early termination clause tied to the franchise agreement. This should be negotiated in advance.
6. What are build-out obligations in franchise leasing?
These are construction responsibilities to meet franchisor specifications. Legal clarity on costs, timelines, and ownership is essential.
7. Are franchise tenants responsible for ADA compliance?
Yes, in many cases. Leases should clearly allocate compliance responsibilities to avoid future liability.
8. What happens if a nearby anchor tenant leaves?
If your lease has a co-tenancy clause, you may be entitled to rent reduction or termination rights.
9. Can a landlord limit franchise signage or branding?
Yes, unless the lease secures signage rights. It’s vital to protect these in the lease to maintain brand visibility.
10. Why should both the franchise agreement and lease be reviewed together?
To prevent legal conflicts between documents and ensure both support your business operations seamlessly.
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