Site Selection with Elana Koral

Should I secure a site before becoming a franchisee?


Site Selection with Elana Koral

Securing a site before becoming a franchisee is generally the norm within South Africa, mostly because good sites are so difficult to find.

In South Africa, there are the ‘big five’ construction and property management companies that operate most sites in major centres. In many cases, franchisors have good relationships with these companies, and will make arrangements on behalf of the franchisee to secure a site.

Generally speaking though, the franchisee takes on all the risk of the lease, and is expected to pay big deposits (such as three months’ rent) to secure a site. This can be a heavy weight for the franchisee to bear.

There are, however, certain conditions in franchise agreements that protect franchisees, stating that should the site not come through, the franchise agreement is null and void.

Unfortunately, in franchising the site must be secured before anything else, so you want to ensure you’re protected should this fall through.

There should also be a cooling-off period of ten days after signing the franchise agreement when things such as site selection can be changed.

A cross default in the franchise agreement and the lease agreement should also be included. In other words, if the lease agreement expires in five years, it should tie in with the franchise agreement.

Finally, while franchisors can also secure a site on behalf their franchisees, this is not common practice in South Africa. If it does occur, it might even take the shape of the franchisor signing the head lease with the lessor and the franchisor renting the premises to the franchisee.

Franchisors often include a clause in the agreement stating that if, for whatever reason, the franchisee exits the business, they have the rights to take over the business from where the franchisee left off.

Should a franchisee go with an area they know or one the franchisor picks for them?

The franchisor should be responsible for doing market research in a particular area which includes a very comprehensive geographical analysis, census data, and any primary and secondary research the franchisor can obtain.

They should confirm which location works, based on the experiences of other franchisees; and which location would be good for that particular franchise, in that particular community, within that setting.

In terms of guidelines, the franchisor should be 100% involved but the franchisee could be free to choose their own site as long as it conforms with what the franchisor has set out.

Standard Bank
About the Author
Standard Bank SA is the largest operating entity of Standard Bank Group, Africa’s largest bank by assets. Standard Bank SA provides the full spectrum of financial services, with more than 720 branches and over 7 100 ATMs. Independent surveys of customer satisfaction consistently place Standard Bank at or near the top of their rankings. The personal and business banking unit offers banking and other financial services to individuals and small-to-medium enterprises. For further information, go to http://www.standardbank.co.za

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