23rd January 2025 ❘ Legal News and Commentary
Franchisee Legal Insights: Five top tips on lease negotiation essentials
Our Franchising team has put together a series of news pieces on the Franchising process and we’ll be sharing these over the coming months. To begin the series, our Partner Helen Hayward offers five top tips on lease negotiation essentials…
As a franchisee you may have a little more to think about when you negotiate your lease than other tenants. Franchise arrangements vary, as do the leasehold structures that a franchisor might want you to enter into. Some franchisors may prefer a sublease structure and, in that case, you may not always be in the driving seat in the lease negotiations. But here are five top tips if you are managing your own lease negotiation with a landlord as a franchisee:
- Align your lease with your franchise obligations
It is essential to ensure you can fulfil your franchise obligations. Provide clear instructions to your solicitor about any obligations which may need be featured in your lease. For example:
- Your signage and refresh and refurbishment obligations – try to minimize landlord consents for works in accordance with the corporate branding of your franchise. The less consents you need the better. The power of the brand should carry reassuring weight for the landlord and allow a more relaxed approach to alteration and signage consents
- Carefully review opening times or delivery limitations or requirements
- Ensure you have the ability to remove your fit out at the end of the term
- Consider any requirements around the ability to assign to other franchisees or any requirements to grant the franchisor an option over the lease or step-in rights
- Get ahead of the game
Unless you are an experienced lease negotiator then showing the heads of terms to your solicitor at an early stage may well save you time and money. Once terms are embedded in heads of terms they can be difficult to shift or change.
- Do your homework
Due diligence properly carried out by your solicitor on the property title and planning position is crucial. Are there planning conditions or restrictions which could impact how you run your franchise business?
- Exit Strategy
An exit strategy may well not be utmost in your mind when you are opening a new venture, but make sure you carefully consider your ability to exit a lease via a break clause, the length of the term or assigning or subletting. If you have negotiated a break clause, make sure you can easily exercise it. Some landlords are still trying to sneak in conditions which make a break clause difficult to operate. Watch out too for restrictions on the use – make sure it is not too limited to stop you assigning or subletting outside the brand down the line if things don’t work out.
- Repair
Not unique to franchisee tenants, your repair liability can turn out to be a major (not to mention expensive) headache. Consider the extent of the repair obligation and in what sort of condition the property is being handed to you. Should your repair obligation be limited to the state of repair in which the property was handed over to you? If it is a lease of part, is there a service charge and should you consider pushing for a service charge cap or specific service charge exclusions? If you are leasing a new build, what protection would you have for any defects in the build? Are there tenant warranties available or does the landlord take responsibility for these in the lease?
If you need help negotiating your lease as a franchisee, you’re welcome to contact our specialist Franchising team for more information – just call us on 01228 552222 or email us – hello@burnetts.co.uk – and we’ll be happy to help.