The Q&A of Canadian Commercial Leases for Franchisees
A significant number of Canada's 1,300 franchise brands - a figure estimated by the Canadian Franchise Association (https://www.cfa.ca/tools_resources/franchise-research-facts/) - involve the franchisee having to lease a commercial space for their new business. Before you begin the site selection process for your location, here are some common questions and answers about commercial leasing in franchises.
Who signs the lease?
Generally speaking, the franchisor wants the franchisee to sign the head lease instead of the company signing it and subletting the space back. Whoever signs the head lease bears the most responsibility, and the franchise doesn't want to take on additional liability if the franchisee fails. In reality, it is generally better for the franchisee to be the one signing the head lease anyway as this gives you more control over your location. On the other hand, a franchisor that signs the head lease and sublets to the franchisee, takes its brand name and reputation extremely seriously and will not want to see the franchisee fail as to the public the brand is the one failing. However, the franchisor most likely will take extra securities in the sublease agreement.
What roles do the franchisee and franchisor play in the process?
Commercial leasing procedures vary greatly by brand. Some franchises provide very little leasing or site selection help, while others turn the process over to a real estate agent. There are some brands that have dedicated staff of their own to handle the site selection and leasing process alongside the franchisee.
Does a franchisee have the final say over a location and the lease terms?
When it comes down to choosing between two or three locations for a lease, many franchisors do defer to the wishes of the franchisee. However, keep in mind that you are the one who is taking the risk, signing a lease and paying rent, so stick to a franchise that will give you the power of a veto when it comes to selecting your site.
What happens if a reasonable lease or good site can't be found?
Find out about the franchisor's specific process and deadlines if you can't find a suitable location or one with a reasonable rent amount and/or lease terms. Buying into a franchise system doesn't guarantee you will find a good location or a willing landlord, so you have to know what the next steps are. Some landlords of hot locations will take this opportunity to try to find out financial numbers on the individual franchisee and in some cases they might try to pressure the franchisor to release some numbers. All this will be part of the negotiation: how bad you want the location and how much information are you or the franchisor willing to release.
How does site approval work?
Many franchises offer franchisees a checklist for determining the potential of a site. Criteria may include area demographics, traffic count and other relevant statistics and features. However, not every franchisor will send a representative out to visit your area and site or negotiate for you, so you will want to know if you are going to need to get outside help in advance.