62 Business Franchise Australia and New ZealandExpERT ADvIcEfEATURE:
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However, we still encourage franchisees to
become involved in this process if possible
and review the commercial lease and
suggest amendments where possible. If, as a
franchisee, you find yourself in this situation,
ask to review or draft documents for input
to ensure that the terms are balanced — this
is especially important if you are the one
paying rent each month and are responsible
for the make good of the premises at the end
of the lease!lease incentive
It’s common for the landlord to provide a
lease incentive to entice the tenant to lease
the premises. For instance, a cash-payment
to assist with fit-out or a rent-free period.
In this situation, the licence to occupy and
any other associated documentation must be
very clear as to who will receive this benefit.
For example, the franchisor should not
retain it and then expect a franchisee to fit
out the shop without the benefit of the cash
payment.
Franchisees should, therefore, ask the
franchisor whether there was any lease
incentive and obtain a copy of any Fit OutDeed along with a copy of the lease.
Franchisees should also pay particular
attention to the lease terms. For instance,
the franchisor may include a term that says
if a tenant leaves the premises or assigns the
lease within a period, they must pay back the
rental incentive (or part of it) to the landlord.
This is known as a ‘claw-back’ period, and
franchisees should ensure they are not
caught by such clauses.costs
The franchisee generally pays the franchisor’s
legal fees.
However, where the leased premises are to
be a retail premises, the franchisee should
be wary of paying the lessor’s legal fees to
prepare and enter into a lease. The landlord
cannot usually recover these fees under state-
based retail lease legislation (unless in South
Australia).
In addition to paying rent, franchisees
should also investigate the costs of anypremises security deposit, upfront rent, fit
out, and other business establishment costs
to better budget for their franchise.Key takeaways
When buying a franchise, it’s easy to
overlook the leasing aspect of the franchise
opportunity. However, it’s an important
piece of the puzzle that franchisees should
not ignore. Seeking independent professional
advice (legal, accounting and business) is a
must to help identify and address any pitfalls
before entering into a transaction.Emma is the Practice Leader in
LegalVision’s Commercial Leasing team.
Emma has been practising law for 17 years
with a focus on retail, commercial and
industrial leasing and franchise law.
LegalVision is a market disruptor in the
commercial legal services industry and
has assisted more than 50,000 businesses.
[email protected]
http://www.legalvision.com.au“it’s common for the landlord to provide a lease incentive to
entice the tenant to lease the premises. For instance, a cash-
payment to assist with fit-out or a rent-free period.”Adverts
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