Ask these questions before signing a real estate franchise agreement

One of the most important, and often overlooked, aspects of purchasing a franchise,
whether you plan to purchase a real estate brokerage franchise, or any franchise that requires physical real estate to operate, is site selection and understanding the rules imposed by your franchisor.

Indeed, whether you are interested in opening the next RE/MAX or CENTURY 21 franchise, or your franchise business model depends upon the need for physical real estate for your operations, there are a number of questions to address with your franchisor.

Questions to ask your franchisor

Leases, purchases and approvals. Will you lease or purchase space to operate
your franchise? And, will your franchisor need to approve your lease or purchase
agreement before you can begin operations? If the franchisor must approve your lease
or purchase, are there any mandated terms that the franchisor requires?

Site selection. What role will your franchisor take in locating a site for you? Will the
franchisor find your site or provide guidance in finding space? Does the franchisor
need to approve your site?

Mandatory use of third parties. Does your franchisor require you to use specific
builders, architects, or other design professionals for your site? Will your
franchisor play any role in the actual build-out, and, if so, what will it charge for this
involvement?

Real estate brokers and fees. Will your franchisor require that you work with
specific real estate brokers? And, if so, who is obligated to pay those fees?

Initial equipment and fixtures. Will the franchisor be involved in helping you
purchase your initial equipment or fixtures for your new space?

It is imperative to obtain answers to the questions outlined above. Failure to do so could
result in significant financial or legal issues.

You will want to understand your potential obligations for the real estate you will be using for your franchise business. This is particularly true if your franchisor seeks to impose various real estate requirements upon you. Oftentimes, these issues are overlooked, forgotten or misunderstood.

Patrick MacQueen is the founder of Medalist Legal in Chandler, Arizona.

This article is for information purposes only and should not be deemed as legal advice. Before signing any franchise agreement, it’s always a good idea to enlist the help of an attorney.

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