Both commercial real estate owners and tenants that are franchisees have control issues that come to the forefront when negotiating leases. Owners—especially those of retail centers—are under pressure to keep a winning synergy of tenants going while also honoring exclusive use and cotenancy rights they have agreed to with the businesses that operate there. Meanwhile, a franchisor’s ability to operate depends heavily on what franchisee it is permitted to work with. Owners will often argue that control over which franchisees will conduct business on the premises is essential. That’s because, without the ability to prescreen, owners could end up with space sublet to a franchisee that lacks the background, knowledge, and capital necessary to run a successful business.
You can create a win-win situation for both sides if you specify that you’ll meet some elements of “approval.” One of these elements is proof of a good track record. When you approach your owner about placing a franchisee in the space, the first thing the owner will probably want to know is the franchisee’s history as a tenant. Has it been consistently late with rent at prior locations? Has it ever been evicted for nonpayment of rent?
To make the sublet process run smoothly and put the owner at ease, agree to provide language in your potential subtenant’s lease that represents that it has never, as a tenant or occupant in any commercial building or center, been in default.
Just as the owner will be concerned about the potential franchisee’s history as a tenant, the owner may be concerned about your history as a franchisor. If you have had past affiliations with bad franchisee/subtenants in other locations, negotiate so the owner won’t hold those previous negative affiliations against you.
For more ways to sublet to a franchisee without the owner’s consent, see “Sublet to 'Approved Franchisee' Without Consent,” available to subscribers here.