Despite the increase in online businesses, many franchises still rely heavily on a physical presence on our streets and shopping centres. Choosing the right location and premises can be vital to the success of your franchise business. As with any business, bringing the right clients in the door will dramatically affect the sales and reputation of your business. This article will help you find the ideal premises for your business and the key factors you need to know.
How Do I Decide on a Location?
This will depend on the product or service your franchise business is offering. Are you running a hairdressing business or a fast-food chain? Finding a location on a main road or in a busy shopping centre may be advisable if you run a business dependent on passing trade. You will likely see higher rental costs in these locations, so it is essential to factor this into your business model when determining the viability of the business.
It would help if you also discussed the premises with your franchisor before entering into the franchise agreement.
Furthermore, as an established business, your franchisor often deeply understands the target market. Therefore, they can guide you in the right direction in determining the best premises for your specific business. They may also have data on the performance of other franchisees in similar locations, which can help inform your decision-making.
While having your franchisor’s input is helpful, it should not be your only resource for making this decision. It is essential to conduct your own research on potential locations, analysing key areas such as:
- demographics of the area, including age, income, and lifestyle preferences;
- the presence of competition in the area to determine whether there is a gap in the mark for your product or service; and
- the accessibility of the location, including parking and public transport options.
The advice of your franchisor, complemented by your own research, can help you decide on the location for your franchise.
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Who Determines the Most Suitable Premises?
As a franchisee, your franchise agreement may specify the exact location of your premises or limit you to opening the franchise business in an exclusive territory. Operating your franchise outside this specified territory or in another franchisee’s exclusive territory will likely breach your franchise agreement. Further, this could lead to the franchisor terminating the agreement. Therefore, you should familiarise yourself with the restrictions imposed under the franchise agreement before committing due diligence on finding your ideal franchise location or premises.
Once you have found premises that appear suitable for your franchise, you must still take more steps. Most franchisors will usually want to sign off on any premises and determine that they are acceptable and fit the requirements or specifications required for the franchised businesses’ operation. This could include ensuring that the location meets size requirements and will be able to accommodate the typical layout, design elements, and equipment required by that franchise network. Your franchise agreement will likely contain clauses allowing the franchisor’s final say as to:
- whether the premises you have selected are suitable; and
- giving them the power to veto any chosen premises.
If there are such clauses in your agreement, make sure that they contain terms outlining that the franchisor must act reasonably when determining a premise’s suitability and must provide you with reasons for any rejection.
Continue reading this article below the formWhat Are My Options for Securing a Premises?
Once you have located your premises and your franchisor agrees on its suitability, the final step is to secure the premises. There are several options here, and your franchise agreement will likely dictate how the franchisor wishes this process to occur. These options include:
| Leasing the commercial premises yourself | This is a standard option and has a relatively low barrier to entry. Ensuring that the lease term corresponds with the franchise term is essential. You do not want your lease to expire early, leaving you without premises. |
| The franchisor leasing the commercial premises to you | Large shopping centres often prefer to lease their premises to known franchisors rather than individual franchisees. In this case, the franchisor licences the premises to you, the franchisee, for the franchise term. |
| Buying commercial premises yourself | This is a significant financial investment. Thus, franchisees rarely adopt this option. |
Under the Code, franchisors must disclose various details to franchisees leasing premises. This ensures you have all the necessary information to make informed decisions for your franchising journey. Familiarise yourself with these obligations to ensure your franchisor’s compliance with the Code.
Key Takeaways
Locating suitable premises is one of the most critical steps for any franchisee entering a franchise network. As such, you must be aware of the factors influencing your ability to choose a premises. These include:
- location;
- rent;
- the terms of your franchise agreement; and
- whether your franchisor determines the premises to be suitable.
Once you fully understand where you can operate your franchise business under the franchise agreement, you should dedicate considerable time and resources to finding your ideal location. Getting it right will be paramount to success.
If you need help reviewing documents for your franchise, our experienced franchise lawyers can help as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 1300 544 755 or visit our membership page.
Frequently Asked Questions
Your franchise agreement will dictate where you can operate your franchised business. Franchisees are given a specific territory in which their premises must be located.
The two most common leasing options are for the franchisee to lease directly from the landlord or for the franchisor to lease the premises and license them to the franchisee.
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