Business Franchise Australia and New Zealand 61lease term and options
Ensure the renewal options and lease terms
align with the franchise term and options.
Otherwise, a costly relocation or an early
end to the franchise agreement could be on
the cards.
handover date
Will the landlord allow access to the
premises before the commencement date to
fit out the premises (noting any franchisor
requirements for fit out)?
commencement date
When did the lease commence? Does this
align with the franchise agreement?
option to renew
Do any lease options align with options in
“committing to a lease is a serious
responsibility, and if the franchised business
does not work out as planned, the
franchisee must answer to both the landlord
and the franchisor.”emma heuston | practice leader, commercial leasing | legAlvisioNthe franchise agreement? Ideally the same
terms and options would be in both the lease
and the franchise agreement.outgoings
Be aware of ALL costs associated with
maintaining the premises, for instance,
council rates, repairs or cleaning are
sometimes payable in addition to rent. It’s
important that the landlord provides you
with an estimate of these costs so you can
budget accordingly. If the premises is to
be a retail premises, the landlord will have
disclosure obligations under various state
based retail lease legislation.
As set out above, where possible, franchisees
should ideally ensure the franchise
agreement and lease agreement aligns with
their start date, term and option to renew.
Otherwise, the franchisee could either have
a business with no site or a premises with no
business. If the two agreements don’t end at
the same time, it is possible to negotiate a
clause to end the franchise agreement early
or relocate to alternative premises for the
remainder of the franchise agreement.
It’s also important to consider whether the
length of the lease will allow a franchisee to
recover costs of investment in the business
and premises. In other words, the period of
the lease and franchise agreement should be
long enough to obtain sufficient profits to
cover the costly fit out and start up costs.
Committing to a lease is a serious
responsibility, and if the franchised business
does not work out as planned, the franchisee
must answer to both the landlord and the
franchisor.
As such, it is crucial for prospective
franchisees to obtain independent legal
advice in relation to the franchise agreement
and lease documents to ensure that they
understand the key commercial issues such
as:- plans for redevelopment that may exist at
the time of signing,- outgoings expenses,
- personal guarantees, and
- lease make good expenses.
It is also worthwhile chatting to: - existing tenants nearby to see what trading
conditions exist and whether they are
aware of plans for the area; and - existing franchisees in the franchise
system to determine if they are happy with
the franchise.
2
the franchisor locates
the premises, negotiates
and enters into the lease, and
licenses occupation to the
franchisee.
Here, the franchisor and the landlord enter
into the lease in a separate transaction which
the franchisee is not involved in.
The franchisor then grants the franchisee a
‘licence to occupy’ the premises. The purpose
of the licence is to place the franchisee in
the shoes of the franchisor as if they were
the tenant under the lease. The franchisee
remains responsible for paying rent, the
bank guarantee or security deposit as well as
obtaining insurance.
Usually, the franchisee is not involved in
negotiating the terms of the lease and must
simply accept the lease. It’s often ‘take it
or leave it’ and the franchisee usually only
has the chance to make amendments to the
licence to occupy.
Because the franchisor still exercises control
of the premises, it’s easier to remove a
franchisee for breaching the franchise
agreement or lease and replace them with a
new franchisee. This means that if a dispute
arises in relation to the franchise agreement,
the franchisee cannot merely ‘rebrand’ if the
franchise agreement is terminated.
There are advantages with a franchisor
often having greater negotiating power
to obtain more favourable lease terms.fEATURE:
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