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5 Critical Aspects of a Franchise Agreement—What to Know Before You Sign

Franchises are one of the most popular business models in California. According to data from the International Franchise Association (IFA), there are approximately 76,000 franchise businesses operating in the state. The franchise agreement is the foundation of the relationship between the franchisor and the franchisee. As a prospective franchisee, you need to carefully review the terms of the contract. Here, our Fremont business law attorney highlights five critical aspects of a franchise agreement and explains the key things to know before you sign in California.

California Regulates Franchise Agreements—But Contract Language is Still Key

The California Franchise Relations Act (CFRA) is a state law that establishes a regulatory framework for franchise relationships. It was passed, in large part, to establish protections for franchisees. The CFRA aims to foster fair business practices and safeguard the interests of California franchisees. Along with other key issues, the law regulates:

Jurisdiction;
Termination;
Nonrenewal;
Transfer of rights;
Inventory repurchases;
Arbitration clauses; and
Venue selection.

While California law provides some important legal protections to franchisees, it is imperative to emphasize that the relationship between the franchisor and the franchisee is still primarily governed by the franchise agreement. You should ensure that your franchise agreement is reviewed by a California business lawyer who has experience representing franchisees.

Note: The California legislature recently passed Assembly Bill 676 (AB 676) into law. It updates both the CFRA and the California Franchise Investment Law (CFIL). The state statute imposes some additional obligations/restrictions on franchisors.

Five Key Things to Look for in a Franchise Agreement in California

The Total Cost (Start-up Investment, Ongoing Costs, etc)

Cost matters. Franchisees in California should consider both the initial investment and ongoing costs. The initial cost—often referred to as the franchise fee,—is the amount payable upfront to gain the right to operate the business. It can vary widely based on the franchise, the industry, and the specific market conditions. Of course, this is just the beginning: A franchisee in California is often also responsible for ongoing costs, such as royalty fees, marketing fees, and other expenses.

Grant of Rights (Territorial Protection, Intellectual Property Usage, etc)

The grant of rights outlines the specific rights and restrictions that the California franchisee has under the franchise agreement. Along with other things, this may include territorial rights. These rights dictate where the franchisee can operate and provide protection from encroachment by other franchisees. Beyond that, the franchisor may grant the franchisee the right to use their IP.

The Resources that Will Be Provided By the Franchisor

Franchisors often provide a variety of resources to franchisees to aid in their success. These resources may include comprehensive training programs, ongoing support, marketing materials, and access to proprietary systems and technology. The specifics of these resources should be clearly outlined in the California franchise agreement to ensure both parties understand their obligations.

Duration—including Renewal Rights and Early Termination Rights

The duration of the franchise agreement defines how long the franchisee has the right to operate the business. This is usually a fixed term, often between 5 and 20 years, but it varies depending on the franchisor. Additionally, the agreement will detail the terms for renewing the contract at the end of the initial term and conditions under which the agreement can be terminated early.

Dispute Resolution Provisions

Dispute resolution provisions are integral to any franchise agreement signed in California. They lay out the process for resolving disagreements between the franchisor and franchisee, whether they relate to contract interpretation, operational issues, or financial disputes. These provisions usually stipulate whether disputes will be handled through negotiation, mediation, arbitration, or litigation. Many franchise agreements include a mandatory arbitration provision.

Call Our Fremont, CA Franchise Law Attorney Today

Lynnette Ariathurai is a business law attorney with the skills, experience, and expertise to represent franchisees. If you have any questions about the terms or conditions of a franchise agreement, please do not hesitate to contact us today for a confidential, no obligation consultation. With an office in Fremont, we provide franchise law representation throughout the Bay Area.

Franchise agreements, franchise dispute resolution, franchise law, franchise regulations

How to Buy or Sell a Medical Practice

Buying or selling a medical practice is complicated. Beyond the complexities that come with any major commercial transaction, there are also specialized legal considerations for the owners and operators of medical practices in California. In this article, our Fremont business law attorney discusses some of the most important things to know about buying or selling a medical practice in Northern California. If you have any specific questions, please do not hesitate to call our law office.

Due Diligence: Make Sure Your Counterparties are Reliable

You should never buy or sell any business without conducting thorough due diligence. Broadly defined, due diligence is an investigation, inquiry, and general exercise of care that a person should take before entering into an agreement.

Due diligence is essential when buying a medical practice. You must have a full understanding of the financial position of the business, including its assets and potential liabilities. Due diligence is no less important when selling a practice. Make sure your counterparties are reliable.

The Structure and Components of the Deal

The structure and components of a purchase agreement matter. Of course, this starts with determining the appropriate purchase or sale price for the medical practice. Parties should also pay very close attention to the structure of the transaction. You may be best off with a stock sale, whereby the entire medical practice is purchased. Alternatively, the parties may prefer an asset sale in which the buyer purchases specific assets held by the practice. It is always the best practice to have a medical practice purchase agreement reviewed by an experienced business lawyer.

Unique Concerns for Buying or Selling Medical Practices

Doctors and other medical professionals who are buying or selling a practice in California should be aware of some of the unique federal and state regulations that will impact their rights and responsibilities. Among other things, these include:

Restrictions on ownership: Any transfer of ownership of a medical practice in California must conform to the requirements of the state’s Moscone-Knox Professional Corporation Act. Medical practices are generally structured as PCs (professional corporations) — there are restrictions on who can own these business entities.
Patient notice: The Medical Board of California has regulations in place regarding patient notice when a practice is sold to another party or intends to close. Make sure that patients are notified of the transaction as soon as possible.
Medical records: The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires medical professionals (and medical practices) to protect sensitive medical records. HIPAA’s privacy requirements must be followed through all aspects of the sale.
Controlled substances: If the medical practice has access to any controlled substances, it is imperative that these highly-regulated drugs are handled properly in accordance with the applicable federal and state laws.

Finalizing the Sale of a Medical Practice

Before the medical practice sale can be finalized, there are several issues that need to be addressed. Once the final structure of the business purchase agreement is in place, be sure to attend to future-focused issues, such as tail insurance and whether there will be a non-compete agreement in place. An experienced California business lawyer can help you secure, organize, and complete all the legal and commercial documents that you need to finalize the transaction.

Consult With Our Bay Area Business Law Attorney Today

Lynnette Ariathurai is a top business lawyer with the skills and experience to represent medical practitioners with buying or selling a medical practice. Contact us today for your fully confidential initial consultation. We serve communities throughout the Bay Area, including Fremont, Newark, East Bay, Union City, Hayward, Santa Clara, Milpitas, San Jose, San Leandro, and Gilroy.

commercial lease, medical practitioners, navigating medical practice lease, negotiating medical practice lease

Navigating Leases for a Medical Practice

A commercial lease is the legal foundation of a relationship between a business and a landlord. If you own and operate a medical practice in the Bay Area, navigating a lease agreement can be especially complicated. There are some unique issues that should be considered and addressed as part of your commercial lease. In this article, our California contract review attorney highlights some of the key issues to consider when drafting and negotiating a lease for your medical practice.

Key Commercial Leasing Issues for Medical Practitioners

Any successful medical practice needs an appropriate space to operate. The commercial property that you set up shop in should be well-suited for the particular needs of your practice. Additionally, the commercial lease that you operate under should provide an appropriate amount of legal protection. Some of the key issues that should be addressed in a commercial lease for a medical practice in California include:

Cost: You should have a clear definitions of the costs associated with your commercial lease. As a starting point, there must be a clear structure for how rent is calculated—either as a fixed monthly rate or as a percentage of revenue/profits. Additionally, a lease usually specifies responsibility for utilities, taxes, common area expenses, and other costs.
Liability: Liability is an important issue in a commercial lease — particularly for medical practitioners. A commercial landlord may try to include terms that shift liability towards your medical practice. Be sure to carefully review and fully understand liability risks.
Tenant improvements: In many cases, a medical practice needs to make certain improvements and alterations to a commercial space to operate. The lease should clarify two key things:
- Your right to make improvements
- Financial responsibility for any improvements
Weekend/night operations: Medical needs can arise at any moment. Many practices operate outside of normal working hours, including on nights and weekends. Make sure that your lease allows for weekend/night operations and ensure that the property is prepared. For example, the heat/air conditioning should be running.
Privacy (landlord access): Privacy is a major concern for medical practices. There are many state and federal privacy regulations in place to ensure that health care providers protect the sensitive health information of patients. It is a best practice to address landlord access to the property and other privacy concerns in a commercial lease agreement.
ADA compliance: The Americans with Disabilities Act (ADA) is a federal civil rights law that puts certain responsibilities on property owners, as well as businesses and business owners. Leases often include waiver of ADA compliance by landlord, and the burden shifts to the tenant to comply. A commercial space may need to be upgraded to ensure that your practice is in full compliance with the ADA. ADA complaints for non-compliance can be expensive.
Duration (termination and renewal): A commercial lease should always have a well-defined duration. Beyond that, the lease should clarify your rights and responsibilities regarding leaving the property before the lease ends and remaining in the property once the lease expires. Among other things, your lease should address forced moves to substitute premises, subletting rights, early termination options, and renewal rights.

Contact Our Fremont, CA Commercial Lease Lawyer Today

Lynnette Ariathurai has deep experience negotiating, drafting, and reviewing commercial leases. If you have any questions about navigating a lease for a medical practice, we are here to help. Contact us now for a confidential consultation. Our firm serves clients from our offices in Fremont throughout the Bay Area including Newark, Hayward, East Bay, Milpitas, Union City, San Leandro, Gilroy, San Jose, and Santa Clara.

commercial lease, medical practitioners, navigating medical practice lease, negotiating medical practice lease

How Commercial Tenants Should Protect Themselves When Leasing a Property

The National Association of Real Estate Investment Trusts (Nareit) reports that the total value of the commercial real estate market in the United States is approximately $16 trillion. With so much competition, it is easy for businesses to get overwhelmed when looking for commercial property. Whether you are renting space for retail, an office, manufacturing, or distribution, it is imperative that you sign a fair lease agreement. In this blog post, our Fremont business law attorney explains how commercial tenants can protect themselves when leasing a property in the San Francisco Bay Area.

Review the Lease Agreement Carefully

When commercial tenants search for a new property, they often focus on the location and the rental rate. This is not surprising — price and location are extremely important in business. In too many cases, business owners overlook the importance of carefully reviewing their lease agreement. The specific details of your commercial lease agreement matter. The lease will control your rights if a problem or dispute arises. Your commercial lease agreement should be reviewed by an experienced business lawyer before you sign on the dotted line.

Be Aware of the Liability Risks

In evaluating a commercial lease agreement, one of the key things to investigate is your liability risk. Often, commercial landlords try to shift a large share of the liability risk onto their tenant. If you fail to carefully review the specific terms of your lease agreement, you could be accepting a far greater liability risk than you are comfortable with.

An important thing to watch for is ‘common area maintenance’ (CAM) charges. Also referred to as triple net lease (NNN), CAM charges are fees paid by the tenant to the landlord that are designed to cover the expenses related to certain day-to-day operations. If you share common space with other commercial tenants, your CAM fees will generally be proportional to your total rental obligations. CAM charges may include things like common area trash removal, landscaping, and elevator upkeep.

Another critical contract provision to watch for relates to repairs and improvement to the commercial property—but in your unit and in the common areas. Make sure you know whether the landlord has the right to pass on repair and improvement costs onto your business. If repair and improvement costs are passed on, you should clarify how those expenses are charged. It may be lump sum payments, or the costs may be amortized over multiple years.

Know Your Right to Negotiate a Commercial Lease

When a commercial landlord presents you with a lease agreement, you have the right to take some time to review the specific terms of the contract. Some commercial leases can be negotiated, others are “take it or leave it.” Regardless, it is imperative that you consult with a California attorney who can help you review the lease and advise you on the meaning and implications of the terms.

You may be able to propose amendments to reduce your total level risk. Alternatively, you might want to purchase a supplemental insurance policy for additional liability protection. Your lawyer can help you come to a final lease agreement that offers a fair rental rate, while also ensuring that you and your company are protected from unreasonable liability risks.

Call Our California Commercial Landlord-Tenant Attorney for Immediate Help

Attorney Lynette Ariathurai has the skills and legal experience to negotiate, draft, and review commercial lease agreements. If you are renting property and have questions about commercial leases, we are here to help. Contact us today to learn more about our business law services. With an office in Fremont, we provide representation to businesses and organizations throughout the region, including in Union City, Hayward, Castro, Valley, Newark, and Milpitas.

landlord, leases, tenant

Things to Consider for Commercial Real Estate Leases – for Landlords

Lynnette Ariathurai, Bay Area Business Attorney, Fremont, Hayward, CA

Owning commercial property in California can be lucrative, especially when that property is located in an area that is highly trafficked and desirable for businesses in the region. At the same time, it is important to recognize that the value of a commercial property investment depends on having a strong, well-drafted lease agreement.

The lease is the basis of your relationship with a commercial tenant. It is crucial that a lease effectively protects your interests in all possible scenarios. Here, our Fremont commercial real estate lawyer highlights six important issues that landlords should consider when negotiating and drafting a commercial lease in California.

Commercial Rent (Base Rate, Utilities, Percentage Leases)

It is no secret that the most important thing for landlords is collecting rent. Rental payments are the lifeblood of commercial real estate investment. A well-drafted commercial lease will help you ensure that you are in the best position to get full and fair market value rent for your property and that you can actually collect the rent.

A commercial lease should clarify exactly who is responsible for all costs—it should specify the amount of base rate, the date it is due, and payment of utilities. In some cases, commercial rent is based, in part, on business revenue. Often referred to as a “percentage lease”, it may be a good option for some California landlords.

Duration of the Lease (Early Termination/Renewal Rights)

A commercial lease should always have a well-defined duration. Both parties need to know exactly how long their current obligations will last. Beyond that, commercial landlords should also consider including provisions that clarify what will happen at the end of the lease. Among other things, you may want to consider:

Automatic renewal rights (first refusal rights);
The ability to extend the lease; and
Early termination options.

At the end of the current commercial lease term, the landlord-tenant relationship will either be extended or it will terminate. It is useful to operate under an initial commercial lease that helps facilitate a smooth transition, whatever the parties decide to do.

Alterations, Improvements, and Maintenance During the Tenancy

Commercial leases should have clear information about the commercial tenant’s ability to make any alterations to the premises during the terms of the lease, as well as information about whether you or the commercial tenant will be responsible for necessary improvements or maintenance during the tenancy.

Insurance and Indemnity

A commercial lease should always prepare for the possibility of unexpected loss—whether because of property damages or a lawsuit from a third party. This starts with insurance. While a commercial landlord will typically maintain their own insurance policy, it is important to consider whether a commercial tenant will be required to have a liability policy or another type of insurance policy as well. Additionally, commercial landlords may also want to consider some type of indemnity clause. As defined by the Cornell Legal Information Institute, an indemnification clause is a contract provision that shifts a liability risk from one party to another.

Collection of Overdue Rent and Evictions for Non-Payment

Unfortunately, not all commercial tenants live up to their responsibilities. You may run into a problem collecting rent. If so, you have the right to take immediate action against the business, potentially including initiating eviction proceedings. Your commercial lease is the basis of your ability to collect rent and evict a tenant for non-payment. A properly drafted commercial lease will ensure that you are in the best position to collect, even if a commercial tenant files for bankruptcy.

Termination of the Lease for Other Types of Contract Breaches

As a tenant, the primary obligation a business owes to its commercial landlord is a timely rental payment. Of course, that is not typically the only obligation. Landlords also need a commercial tenant who will treat their property well. In a commercial lease, you should strongly consider including a clear definition of what constitutes a breach of contract sufficient to justify termination of the lease and removal of the tenant. For instance, a commercial tenant may be removed for creating a nuisance or engaging in unlawful activity on the property.

Contact Our California Commercial Real Estate Attorney Today

Are you planning to rent commercial property to a new business tenant? You should seek advice about your commercial real estate lease from an experienced Fremont business law attorney. Attorney Lynnette Ariathurai is committed to serving commercial real estate landlords in California and can discuss the issues you should be considering in your commercial lease. Contact us to learn more about the services we provide. We serve clients in Fremont, Hayward, Milpitas, Union City, Newark, and throughout the East Bay.

business law attorney, commercial property leases, commercial real estate leases, contract agreements, contract attorney

Legal Considerations Before Signing a Commercial Lease

Most entrepreneurs do not understand that in a commercial lease the leasing agreement is whatever the parties decide. There is considerably less legal protection for a business in a commercial lease than in common residential leases.

For example, in a commercial lease, the parties can opt out of many of the protections provided for by California’s commercial landlord and tenant laws, whereas in a residential lease, a tenant cannot. If a business enters a commercial lease waiving some of the statutory protections provided by these laws, a court called in to resolve a dispute between the parties, at a later date, may only consider the commercial lease as it is written and signed by the parties.

1. Know which lease terms can be adjusted

Just as there are customs and practices in your trade or industry, there are also customs and practices in commercial real estate leasing that are hyper local or specific to the leasing agents or commercial property owners in your area. Make sure you understand which terms in a standard commercial lease can be adjusted before you start negotiating the terms of your own commercial lease.

2. Be prepared to provide a personal guarantee or walk

Some landlords require new business owners or shareholders to personally guarantee the commercial lease. This typically eliminates the very legal protections obtained by creating a corporate entity in the first place. There is limited room to maneuver an alternative option. Be prepared to walk and continue your commercial space hunt if you’re not comfortable offering a personal guarantee of your business’ commercial lease.

3. Build in an option to grow

Businesses are formed to make a profit. When businesses are successful, they grow. The initial commercial space needed to launch a business may be quite different from the commercial space needed to maintain and grow it. Make sure your commercial lease reserves the right to relocate if your commercial space no longer works for your business and contains an exit strategy that would allow you to amend or terminate a commercial lease early. However, it may be important to prevent the landlord from having the option of moving you from an ideal space to a less desirable location. Any relocation clause in the contract should provide flexibility but not give too much power to the landlord.

4. Hire a business lawyer

Commercial property owners, real estate development companies, and leasing agents are very knowledgeable about the power they possess to demand terms from businesses that may not be in their best interest. Seek the advice and legal counsel of knowledgeable commercial real estate lawyers to help you negotiate your commercial space lease, before signing.

If you are a new business in Fremont, Newark, Hayward, East Bay, Milpitas, Union City, San Leandro, Gilroy, San Jose, or Santa Clara, CA venturing into your first commercial space lease you should be aware of the following before you sign your first commercial lease or renew their next one if saddled with unfavorable terms in their current lease. Talk to The Law Firm of Lynnette Ariathurai when you are reviewing or preparing to sign a lease agreement, you will be glad you did.

business agreements, business lawyer, commercial leases, personal guarantees

California Real Estate Company Expands With Business Merger

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Mergers & Acquisitions on Thursday, November 14, 2013.

There are a variety of methods that a company may utilize in order to expand its share of the market. Some of these may include marketing, advertising or strategic property purchases. However, many times the best way to do this is through a business merger. This is what one California real estate company has decided to do in its recent merger with another real estate company.

The company, TRI Pointe Homes, is in the middle of finalizing its merger with Weyerhauser Real Estate Co. The merger is estimated to be a $2.7 billion deal and will give TRI Pointe Homes a larger control of the nationwide real estate market. The deal will bring an additional 27,000 properties into the company’s real estate portfolio. Approximately 16,000 of these properties will be located in California, which will make the company a significant force in the state’s real estate industry.

The merger will give TRI Pointe Homes ownership of Weyerhaueser’s five brands: Quadrant Homes, Winchester Homes, Pardee Homes, Trendmaker Homes and Maracay Homes. Weyehaeuser’s shareholders would account for approximately 80.5 percent of ownership in the newly merged real estate company. The merger is predicted to be finalized by the third quarter of 2013.

However, in order for this business merger to be successful in California, all of the legal terms of the transaction must be properly detailed in necessary legal contracts between the parties involved. The contracts should be carefully drafted in order to minimize any misunderstandings that may lead to future lawsuits. Knowledge of applicable laws regarding contracts and business will be integral. Additionally, it is important to file the correct paperwork with the proper regulatory agencies.

Source: Los Angeles Times, Home builders TRI Pointe, Weyerhaeuser Real Estate to merge, Andrew Khouri, Nov. 4, 2013

business mergers, commercial real estate business law

It Is Important to Diversify Commercial Real Estate in California

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Commercial Real Estate on Thursday, September 12, 2013.

Real estate is an important investment for most people. However, this type of investment is subject to the rise and fall of the economy. This is why many people want to diversify their commercial real estate portfolio so they can minimize risk. The founders of the California Family Fitness gym chain decided to diversify their real estate portfolio recently by selling $98.7 million worth of real property.

The founders sold the ten properties, which are currently leased to California Family Fitness, in order to reinvest in other properties which were not solely dependent on only one tenant. Although the one tenant, California Family Fitness, is a healthy and growing company, the founders still wanted to further diversify in order to have a more balanced real estate portfolio. The founders of the gym chain currently operate another company Fit Development which will be used to purchase commercial real estate across multiple Western states.

The two founders of the gym chain, who had sold the chain in 2006 while retaining ten percent each, are currently contracted to purchase 500,000 square feet of properties in four different states, including California. However, the purchase needs to be completed soon, in order to take advantage of Section 1031 of the U.S. Tax Code. The code section allows the founders to purchase the commercial properties without incurring tax liabilities on the sale of their former properties, however they must finalize the purchase of the new properties within six months.

As one may be able to see in this case in California, selling and buying commercial real estate can require some knowledge of applicable law in order to make the transaction financially successful. However, each person will have different goals when making a real estate transaction. Certain tax and real estate laws may only apply in specific circumstances, therefore one’s strategy will have to apply the law to one’s specific situation.

Source: Sacramento Business Journal, California Family Fitness founders sell nearly $99M of real estate portfolio to reinvest in other properties, Kelly Johnson, Aug. 30, 2013

1031, Commercial Real Estate, Purchase