USA Trends and Developments Contributed by: Richard L. Rosen, Leonard S. Salis and Dennison D. Marzocco, Rosen Karol Salis, PLLC
a franchisee’s/tenant’s perspective, providing the landlord with a “good guy” guaranty of the entity’s principal is significantly more preferable than provid - ing a “full” individual personal guaranty for all of the obligations under the lease. A good guy guaranty is a conditional limited personal guaranty which limits the guarantor’s financial liability (provided that the tenant vacates the leased premises, often in “broom clean” condition, and with defined advance notice, for all rent and additional rent through the agreed-upon surren - der date). Rights of Transfer and Assignment From a franchisee’s/tenant’s perspective, the ability to negotiate assignment and transfer-related provisions is very important. When landlords prepare commercial leases, they often seek to require a great deal of control over when, and under what circumstances, the tenant is permitted to assign or transfer the lease. However, the franchisee/tenant will always seek to maximise the value of the franchised business, and therefore will want to negotiate the assignment/transfer-related provisions in such a way as to provide it with as much flexibility as possible. For example, franchisee counsel should seek to negotiate a provision that will permit the tenant to assign the lease to the franchisor or any of its affiliates, or to any “approved” existing or new franchisee of the franchisor, without having to obtain the “consent” of the landlord.
Franchisee counsel should also seek to negotiate a provision that if the new tenant (assignee) provides the landlord with a good guy guaranty (in the same form provided by the existing guarantor) with the guaran - tor having a net worth that is at least as much as the existing guarantor, the landlord will then release the existing guarantor from liability following the effective date of the lease assignment. In any of the above cir - cumstances, the existing franchisee/tenant should be released from liability under the lease (and franchise agreement) as well. Lease Term, Options and Renewals From a franchisee’s/tenant’s perspective, the expiry date of the initial lease term and all renewals should “match” exactly with the expiry date of the initial fran - chise agreement. As the franchisee/tenant should seek to maximise the value of the franchised busi - ness, it should negotiate a potential, total lease term, including lease options to renew the lease, which cumulatively is at least 20 years. For example, if the term of the initial franchise agreement is ten years and the franchisee has, at a minimum, either one ten-year option or two five-year options to renew the franchise agreement, the franchisee/tenant should negotiate a lease term that mirrors the initial term and renewal term(s) of the franchise agreement, and the expiry of the lease term(s) should always match the expiry dates of the franchise agreement term(s).
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