Commercial property and commercial leases in franchising

Taking on commercial premises as a franchisor

Finding the right premises and agreeing a lease is an important step for a franchise business. You will probably want a level of uniformity for your brand in respect of location as well as interior fittings.

The franchise agreement that your franchisees sign should include all of the terms that you wish them to abide by in respect of commercial property.

Allowing your franchisee to choose and lease commercial premises

If you wish, you can leave finding premises to your franchisee and require them to sign the lease directly with the landlord. However, you should still have some say over the terms of the lease. You can also consider a Deed of Option, which will give you the ability to take over the premises in the event that the franchisee decides to leave.

Taking on a commercial lease and sub-leasing to your franchisee

Alternatively, you may want a higher degree of control over the choice of premises and the terms of the lease. You can opt to lease premises yourself from a commercial landlord and then sub-let them to your franchisee.

The sub-lease would include the same terms and conditions as the head lease so that your franchisee will abide by the landlord’s requirements.

This gives you the option of carrying on the lease should your franchisee leave, meaning that you can either operate the enterprise yourself or install a new franchisee.

You should also consider whether you want control of the fitting out process of the property to ensure consistency across your franchise brand. You can require your franchisees to pay the cost of this, but send your own contractors to do the job to your specifications.

Commercial lease pitfalls

There are considerable pitfalls in the leasing of commercial premises, with one of the main dangers being the need to hand property back in a state of good repair, even if it is was not in good repair when it was rented to you.

Similarly, you need to be aware of the length of any lease and how easy it will be to end it. If your franchisee does not make a success of the franchise, you could run the risk of ending up having to pay substantial rent for commercial premises that are standing empty. Ideally, the length of the lease should be tied in to the length of your franchise agreement.

We can advise you on the liabilities that you will be taking on in respect of any commercial premises and ensure that you take steps to avoid future difficulties.

As well as the costs of the lease, you will also need to take into account any ancillary expenses, such as business rates, which can add an average of 40 per cent to the rental costs, and decide who will be responsible for all the charges involved.

As well as advising you in respect of commercial leases, we will also make sure that your franchise agreement contains watertight clauses in respect of premises and your franchisee’s obligations.

Contact us

Hutchinson Thomas is the first law firm in Wales to be awarded the Law Society Mark of Excellence. The firm and many of our lawyers are recognised year on year in the Legal 500 publication as leading individuals in their field.

We have wide-ranging experience of the franchise industry and as well as leading expertise we provide an excellent service to our franchisor clients. We will take the time to understand your business needs and make sure we are always available to speak to you when needed to answer any questions you may have.

If you are considering taking on a commercial lease for your franchise and you would like to speak to one of our expert solicitors, ring us on the following numbers or fill in our contact form.