Long Term Rental Agreements With Franchisees

A franchise is a company organic structure in which a business, which already has a flourishing product or service, enters into a business association amidst another businesses at work under the original business's trade name. Some of the most modern franchises in South Africa include Wimpy, Steers, Fruit and Veg, and Something Fishy etc.

The original business organization will work as the franchisor and the businesses trading under the original businesses name is the franchisee. The franchisee generally speaking works under the guidance of the franchisor and adopts the franchisors commercial affairs and systems. The chances of success of the franchisee are exponentially strengthened due to the fact that the business dealings and systems of the franchisor has been tried and tested.

Why is this fundamental from a landlord's perspective?
Franchises in a retail shopping center, whether regional or convenience, attracts feet to the shopping center due to the fact that a franchise is predominantly a brand name. Franchises ordinarily have a national footprint and the franchise brand is aggressively marketed on national media e.g newspapers, radio, internet and television. This brand awareness benefits either the landlord and the franchisee where a well located shop will enhance the brand and attract feet to the shopping center.

Due to the fact that a franchisee falls under the guidance, systems and processes of the franchisor, the landlords claim the benefit that a renowned business establishment is immediately operated on the premises. This reduces the risk of failure and a landlord's risk is mitigated in the process. This provides the franchisee with the opportunity to negotiate longer rental agreements and more profitable rates compared to a start-up business that has no track record at all.

An extra advantage is where the franchisor most often investigates the site prior to permission being granted to the franchisee. If approved it is a sufficient indication that the site is well stationed and then attracts other franchises which complement one another.
This provides a satisfactory tenant mix enhancing a destination shopping experience. A well selected tenant blend attracts feet which, if properly managed, produce a long term sustainable business for the franchisee and the landlord. The franchisee generates revenue and the landlord receives rental. This symbiosis provides a sound operational relationship.

It had best be noted that both parties will need to make sacrifices in the beginning of the relationship. Franchisors predominantly require landlords to provide additional for the brand that they are bringing to the shopping center. Landlords are required to allow for tenant installation where they will not gain any rent for an agreed period of time. Franchisees are generally speaking required to fit the premises in accordance with specifications for the franchisor. This takes time and money from both the landlord and the franchisee. Both parties are then inclined to sign long-term lease agreements where the franchisee would like to see a return on investment and not risk being vacated. The landlord would like to claim a return on investment through long term lease agreements. This provides a perfect marriage between the parties. Provision for divorce is however crucial.