controlling the franchisee’s location: legal and business issues for international franchisors...
TRANSCRIPT
Controlling the Franchisee’s Location: Legal and Business Issues for International Franchisors
Moderator:Carl ZwislerGray Plant MootyWashington, DC
2010 IDI Annual ConferenceTorino, ItalyJune 11-12, 2010
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Panelists:
Luciana Bassani Claudia Santos CruzDannemann Siemsen Advogados AVM ADVOGADOSRio de Janeiro Brasil Lisbon, Portugal+55 21 2237 8714 +351 304 501 010 [email protected] claudia.cruz@avm-
advogados.com
Paul Jones Patrick Lindgren Jones & Co. ADVOCARE LAW OFFICEToronto, Canada Helsinki, Finland416.703.5716 +358 (0)10-666 [email protected] [email protected]
Anders ThylinThylin Advokatbyrå ABStockholm, Sweden+46 (0)8 545 141 65 [email protected]
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How to obtain and maintain control over the location of the franchisee’s outlet.
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Objectives:
To identify and evaluate how franchisors obtain and retain control of the premises from which their franchisees operate;
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To identify differences in laws and practices among countries which pertain to how franchisors may exercise lease controls; and
To identify issues which should be addressed in international franchise agreements to maximize franchisors’ ability to control leases of premises.
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Thesis:
Franchisors everywhere wish to be able to make sure that the locations which they either select or approve for their franchisees remain a part of their franchise networks, even if the franchise relationship ends.
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Leasing practices differ so significantly that addressing them must be a part of the early consultation with local counsel when entering a new market.
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1. What is the objective of location control?
• to protect franchisors if they sublease to obtain prime locations
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Goodwill!!• to protect goodwill at locations which
were selected/approved by the franchisor and developed under a franchise agreement
ABC
BRAND X
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• to profit as a (sub)landlord
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• to dissuade franchisees from terminating or not renewing their franchise agreements
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2. Which form of franchise lease controls do franchisors use in your country? Which do they not use?
• Franchisor subleases or franchisor-mandated master franchisee subleases
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• Conditional lease assignment
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• Franchisor has right to acquire premises and business upon termination of franchise (with or without rights under lease)
• Post term non-compete covenant
Zor Store
Silvia
Enterpris
es
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3. What is the typical lease term in your country? Is it generally renewable?
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4. Is the duration of commercial lease terms usually consistent with the terms of franchise agreements used by franchisors? If not, how are the differences accommodated?
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5. How do local laws or practices affect landlords’ and tenants’ rights upon:
• Termination of a lease– for cause– without cause
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• Expiration of a lease
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You owe me 3 years rent… NOW!!
• Right to accelerate rent
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• Right to collect damages– How is this quantified?
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BARGAIN!!!
– Duty to mitigate damages/relet the premises
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• Right to enter location and seize personal property to satisfy claims against the tenant
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• Right to acquire or operate the tenant's business operated from the premises
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• Duty to offer renewal and conditions of any mandatory offer
EXPIRED
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6. May franchisors exercise control over franchisees' premises without the landlord agreeing to the controls in its lease with the franchisee?
Zor: FA says I can now occupy this space
Landlord: Oh.. Really?
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7. What legal or practical problems arise if a franchisor subleases property to its franchisees?
Landlord: You owe me regardless
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• Franchisee default results in duty of franchisor/sublandlord to pay rent and operate business or find a franchisee
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• Restrictions on marking up rent which it charges subtenant/franchisee
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• Franchisee right to assign the lease
Take my store, Please!
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• Franchisee right to renew upon lease expiration, even if franchise has expired or terminated
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• Prohibition on foreign franchisor owning local business or an interest in real estate or operating certain types of businesses
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• License required to engage in business of leasing real estate
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8. Are landlords and franchisees generally willing to enter into conditional lease assignments in your country?
Landlord: You must be kidding.
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9. Must enforcement of a franchisor's rights under a lease take place in a local court rather than through arbitration or litigation in foreign courts?
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10. Will a choice of a foreign law have any impact upon obligations under a lease or a sublease?
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11. Which language do franchisors usually demand that franchisees have in leases to protect franchisors’ rights under their franchise agreements?
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12. Are landlords generally amenable to accepting these terms?
Landlord: You must be kidding, Silvia.
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Thank you,
Carl E. Zwisler
Gray Plant Mooty
2600 Virginia Avenue, NW
Suite 1111 – The Watergate
Washington, DC 20037
Phone: 202-295-2225
Facsimile: 202-295-2275