Skip to 0 minutes and 9 seconds Real property is land, and buildings, and the fitout items that are permanently fixed to the buildings. This might, for example, be the glass shopfront. It does not include things like movable shelving or movable ovens that are categorised as personal property. The law has different rules for real and personal property.
Skip to 0 minutes and 36 seconds An important decision franchisors and master franchisors have to make is who will control the real property? The premises occupied by the franchisees. You will see from this diagram that there are lots of different ways of structuring the landlord, franchisor, franchisee relationship.
Skip to 1 minute and 5 seconds The franchisor might choose different models for different sites, depending on the specific sites and the landlords preferences. Not all may be possible. The landlord might want to deal only with franchisors so that franchisees have to take sub-lease or licence of the premises. For example, in big malls and shopping centres. If the franchisee takes a sub-lease the landlord will want to guarantee from the head-tenant, the franchisor. Sometimes a franchisor requires the franchisee to supply this guarantee.
Skip to 1 minute and 46 seconds Once the franchisor or master franchisee has decided how they would like to connect their franchisees to their premises, they must remember to check whether there any disclosure requirements about leases in franchise laws. For example, the franchisor much be required to provide a copy of the lease or sub-lease to franchisees. Or to provide information about the cost of fitout. Once the franchisees are trading they may face relocation if the landlord decides to redevelop a property or compulsory acquisition of the land they are on. For example, if the franchisees premises are located next to a main highway or a railway that expands.
Skip to 2 minutes and 36 seconds Where a franchise requires sizable costs sunk into the premises, all parties to the lease need to consider how they would be affected if any of the others becomes insolvent. They may be able to lessen any adverse impacts of insolvency through careful contract drafting. Franchising does not exist in a legislative vacuum. Personal property used by franchisees, such as cash registers, pizza ovens, motor vehicles, may have loans secured over them. There may be interests that need to be registered on personal property securities registers.
Real and personal property
Real property is land and buildings and the items that are permanently fixed to the building. This might, for example, be the glass shop front.
It does not include things like moveable shelving or moveable ovens that are categorised as personal property.
The law has different rules for real and personal property. Within the category ‘personal property’ is tangible and intangible property. There are also separate laws for tangible (eg chairs, cars) and intangible (eg trademarks, patents) property.
An important decision franchisors and master franchisors have to make is who will control the real property, the premises occupied by the franchisees?
Property rights differ depending on the legal relationship created:
- Own: This is the most secure approach for the occupier.
- Lease: The occupier enters into the lease directly with the owner. In some situations leases can be registered on the title to the land.
- Sub-lease: This occurs in situations where the franchisor wants to retain the site so the franchisor enters a head lease arrangement with the landlord/owner and grants a sub-leases to the franchisee. Sub-leases are not usually registered on title.
- License: This is the least secure approach for the occupier. A license creates a right to use the land in consideration of a fee subject to the conditions set out in the license. It does not grant exclusive possession or create/ transfer interest in the premises.
- No formal tenure agreement: This exists but is not reliable.
Franchisees may be required to enter a retail premises lease, sub-lease or licence with the franchisor or with third parties, or to fit out premises with no security of tenure.
Laws about land rights vary from country to country, some examples include:
- In Australia, real property laws are state based, not Commonwealth
- In Czech Republic foreigners are free to acquire land, except for agricultural land
- In Denmark leases of business premises are regulated under Business Leases Act 2010
- In USA FDD Disclosure Item 22 all proposed agreements re franchise offering must be attached – including leases/ licenses
As you will see from the attached diagrams there are different ways of structuring the landlord/franchisor/franchisee relationship.
The law has different rules for real and personal property, in this video Dr Buchan goes into more detail about the important real and personal property considerations when expanding a franchise.
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