Re-negotiate lease when buying existing franchise.

[bubbleboy]

Do a new buyer have every right to re-negotiate a new lease when buying an existing franchise? A colleuge of mine had a disagreement that the lease can only be transfer/assign to new buyer with same term.

I call it BS because the existing lease was negotiated base on the seller's own business decision, as a new buyer you are entitle to make your own decision and negotiate the lease that you want.

thoughts?

[Truth in Franchising]

The lease is between the tenant (franchisee), the landlord and likely with lease language protecting the franchisor. The lease has transfer/assignment provisions that govern and you may be able to get a new lease but the landlord and the franchisor would have to agree since the lease should be coterminous with the franchise agreement.

TIF

[FuwaFuwaUsagi]

TIF:

Cab you provide an example of how the lease language would protect the franchisor?

FuwaFuwaUsagi

[Joe]

It would depend on the lease,  in most cases no,  If the seller sells the business in year 2 of a 5 year lease,  you would have 3 years left under that lease,  you, the new business owner assume the remaining 3 yrs on the lease.  If it is a 5yr lease with 5yr option, you would be able to renegociate the 5yr option.
It all depends on the landlord, if they are local, maybe, if its a corporation like Benderson or DDR, chances are very slim.

[Truth in Franchising]

TIF:

Cab you provide an example of how the lease language would protect the franchisor?

FuwaFuwaUsagi

The right but not the obligation to step into or assign the lease.

[Truth in Franchising]

It would depend on the lease,  in most cases no,  If the seller sells the business in year 2 of a 5 year lease,  you would have 3 years left under that lease,  you, the new business owner assume the remaining 3 yrs on the lease.  If it is a 5yr lease with 5yr option, you would be able to renegociate the 5yr option.
It all depends on the landlord, if they are local, maybe, if its a corporation like Benderson or DDR, chances are very slim.

Well to the contrary we have franchisees that sell their franchises and the successor franchisee upon acquisition enters into a new lease for term equal to the term of the new franchise agreement.

TIF

[FuwaFuwaUsagi]

The right but not the obligation to step into or assign the lease.

Ah, now I get it; thanks TIF.

FuwaFuwaUsagi

[benchod]

If you are seller, your best bet is to have new buyer enter into a brand new lease. This benefits the seller two ways. One , that all liabilites are released, including personal guarentee, and second, the new lease has nothing to do with previous lease.

If your a buyer, you should try your best to assume the lease. This will allow you, as a buyer a protection under the old lease, in case if you decide to bail out during the lease terms, the seller will still be assume under the personal guarantee. Hence, will allow you double protection.

This may contradict it's self, but these are two point of positive view that buyer and seller should consider.

[PaulSteinberg]

As previously noted, most landlords will not agree to a novation but most leases contain provisions relating to assumption.

Viz the personal guaranty, I have had leases which provide that upon assumption, the incoming tenant signs a personal guaranty whereupon the outgoing personal guarantor is released. Of course, this works only if the outgoing (selling) entity will be a shell after the sale, but if that is not the case then you can tweak the language to achieve the desired result.

If you are the seller and are unable to get a release from the guaranty, you should make sure to have appropriate language in your contract (or addenda thereto) to enable you to go after the purchaser and the natural person/guarantor which stands behind the purchaser. This will avoid the purchaser defaulting and leaving the original guarantor stuck. Of course, this will only work if the defaulter's guarantor has assets...but judgments are good for many years (depends on state law). At very least, the new (purchaser) tenant will think twice about defaulting.