Lease guaranty with multi-unit franchisee

[Nico Fricchione]

Hello everyone- 

I am currently working on negotiating lease terms with a restaurant franchisee for a redevelopment project. It is important that we protect our investment with the proper guarantee and we create a "sellable" lease for a potential buyer if we ever decide to sell the property after completion. Of course getting a corporate guarantee from the franchisor would be best case scenario but like many franchisors we will not be able to obtain this type of guarantee. The other option is to try to obtain a corporate (store) guarantee from the franchisee - by store guaranty I am referring to a guarantee backed by the current stores that the franchisee is operating. So if they have 9 stores the guaranty would be a 9-unit guarantee. 

We would ultimately like to bundle the guaranty with all of their current stores, however each store is an individual LLC and so it would seem that there would be somewhat limited value to have this type of guaranty - for example, is there anything keeping the Tenant from selling those businesses? What happens when the Tenant's other leases expire? What other assets, do those entities own beyond the business? Sometimes the franchisee will have an umbrella entity that holds under it all of their other individual store entities. This particular franchisee does not. They will give us a personal guarantee for a number of years but we ultimately would like to get the most lease strength as possible. The current lease term negotiated is 20yr triple net. I am trying to determine the extent of the guarantee needed and how best to structure the guaranty to include the additional stores as collateral. Any advice is greatly appreciated.

Regards,

Nico