Premises issues connected with your Franchise

If your targeted franchise is going to operate from retail or office premises you will need to identify the appropriate location for those premises and negotiate the lease.  When considering a franchise establish whether the franchisor assists in locating suitable premises, as obviously they have a better knowledge of the ideal locations and will probably have contacts with agents that can help in your search.

There are two main scenarios that will arise in relation to the premises to be used for a franchise.  Either the franchisor will take the lease of the premises and sublease them to the franchisee; alternatively, the franchisee may be left to take a lease directly with the landlord, or sub-landlord, of the premises, sometimes subject to the franchisor being granted certain rights in connection with the lease. In either of these scenarios there are traps for the unwary:

Independent Landlord

Important factors to consider when the landlord is an independent third party:

• Negotiate to ensure the duration of the lease coincides with renewal of the franchise agreement, or if the lease is for longer than the franchise term, negotiate a break clause at the franchise renewal date. You do not want to be stuck with the liability of a lease if your franchise is not renewed or you choose not to renew;
• Avoid signing the lease before the franchise agreement is signed in case a problem occurs and you are not accepted as a franchisee; franchisors do sometimes refuse a prospective franchisee.  Landlord’s solicitors and agents will encourage you to sign up as soon as possible, so ensure they are aware that you will only sign in conjunction with the signature of the franchise agreement;
• Do the terms of the lease restrict you from operating any other business from the site other than that of the franchise?  This may be important if you wish to continue the lease, but not the franchise business;
• Does the franchisor have any specific requirements in relation to the lease, and are they required to approve it before you enter in to it?  In the event of termination of the franchise, the franchise agreement may contain an option for the franchisor to require the franchisee to assign the lease to the franchisor. In those circumstances the franchisor may want to approve the provisions of the lease. 

Franchisor Landlord

Important factors to consider when the franchisor is the landlord:

• The franchisor may only permit the sale of goods and/or services which are connected to the franchise to ensure that the franchisee is not carrying out any business outside of the franchise agreement;
• Generally the franchisor will ensure that the term of the lease coincides with that of the franchise agreement in order to ensure the franchisee has a location from which he or she can carry out the business in accordance with the franchise agreement;
• As the landlord, the franchisor may try and link defaults under the lease agreement with the franchise agreement. This could mean that a breach of the lease results in a breach of the franchisee agreement, and this creates an additional control mechanism for the franchisor;
• Upgrades required to the premises will be more easily implemented;
  The franchisor may try and include in the lease additional clauses that benefit the franchisor, taking the view that the franchisee and the lease come as a package;
  Exit from the lease in the event of early termination of the franchise agreement may be easier where the franchisor is prepared to take back the lease or assign it to a new franchisee.

The issues listed are not conclusive and it is essential to take legal advice during the negotiation of other agreements, such as leases, that are connected to your franchise.  At Birkett Long Solicitors our team can offer expert advice on all aspects of franchising and leases.

If you would like assistance with any aspect of buying or selling a franchise business please contact Tracey Seath, a commercial solicitor who specialises in advising and assisting franchisees and franchisors. To contact Tracey complete the enquiry form below