Marco Hero Rechtsanwalt TIGGES Rechtsanwlte Prinzregentenplatz 21 The

Marco Hero, Rechtsanwalt TIGGES Rechtsanwälte Prinzregentenplatz 21 The Importance of Securing the Location in Franchising 81675 München Tel: +49 - 89 – 411 89 - 7337 Fax: +49 - 89 – 411 89 7333 hero@tigges-info. de IDI Annual Conference Torino 2010 1

I. Types of Location • • • Mobile Unit Freestander Home office Web-shop Shop-in-shop „classic“ shop 2

II. Standard Arrangements to Secure Location • Location is property of franchisor • Lease agreement between – landlord & franchisee – landlord & franchisor plus sub-lease franchisor/franchisee • Location property of franchisee 3

1. Location Property of Franchisor Advantages for franchisor: • • High level of post-term control over „key“ locations Sub-lease additional revenue source „package“ sale of franchise strong asset Disadvantages for franchisor: • Requires additional capital • risk of failure / weak location with franchisor 4

2. Location Property of Franchisor – critical issues • • • Allocation of key locations Financing Return of Investment Post-term transition to new franchisee Risk of underperforming location or underperforming franchisee in key location 5

2. Location Property of Franchisee Advantages for franchisor: • • • Requires no additional capital fewer 3 rd parties involved (landlord, but financing insitutions) Quick allocation Disadvantages for franchisor: • • • Low post-term control over premises Capital intense for franchisee No additional revenue source 6

2. Location Property of Franchisee – critical issues • Post-term territory • Post-term awareness • Post-term necessity to rebuild brand in necessity to rebuild customer in territory commitment of franchisee 7

3. Location Property of Third Party („Landlord“) a) Franchisor leases from landlord Advantages for franchisor: • • Post-term control over premises Additional revenue through sub-lease or package deal Disatvantage: • Franchisor risks default of payment by franchisee 8

3. Location Property of Third Party („Landlord“) a) Franchisor leases from landlord - critical issues: • Interaction of lease- / sub-lease- and franchise agreement - • corresponding terms of agreements consequences of termination of either agreement fees / rent preparation of premises (before/post term) Brand control vs. premises control ( e. g. in shopping mall) 9

3. Location Property of Third Party („Landlord“) b) Franchisee leases directly from landlord Advantages for franchisor: • No contractual obligation of franchisor • No capital required for site acquisition Disadvantages for franchisor: • Low control over premises • Low control over brand 10

3. Location Property of Third Party („Landlord“) b) Franchisee leases directly from landlord – critical issues: • Interaction of franchise- and lease agreements of franchisee - terms - fees / rent • Franchisor‘s optional right to enter into lease agreement / premises • Post-term transition to next franchisee (e. g. in a shopping mall) 11

Questions? Thank you! Marco Hero TIGGES Rechtsanwälte Prinzregentenplatz 21 81675 Munich Tel: +49 - 89 – 411 89 - 7337 Fax: +49 - 89 – 411 89 - 7333 hero@tigges-info. de 12