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Franchisors and franchisees have three main options when it comes to leasing premises. Each has their particular advantages and disadvantages, and the method that you choose will depend on your circumstances. These options are:

  • The franchisee negotiates with the landlord to hold the lease themselves;
  • The franchisor negotiates the lease and then transfers it to the franchisee;
  • The franchisor negotiates the lease and then licenses it out to the franchisee.

Each of these frameworks has differing obligations and liabilities. It is also important to note that there is no national uniform leasing laws or regulations. Each state and territory have their respective retail leasing legislations. Hence, if you are operating a national franchise, you will need to understand both the leasing laws of each state or territory as well as how the different leasing arrangements can affect your franchise.

Which Leasing Arrangement Is Best For My Franchise?

The leasing arrangement you decide on will usually boil down to two main considerations: the nature of your franchise system and the risk factors surrounding the premises. For instance, the first arrangement gives the franchisee a lot of control over the premises, while exposing the franchisor to a greater amount of operational risk. If the franchisee decides to leave the franchise, the franchisor faces the risk of losing the premises. This risk can be particularly hurtful for the franchise if the premises was in a prime location or gained a good reputation.

Conversely, the second arrangement gives the franchisor more control of the site. The franchisor can negotiate with the landlord directly, which can be beneficial in the long run if they are leasing multiple premises. However, the extra layer of documentation can make it more expensive, and the franchisor can also eventually lose their right to access the property once they have assigned it.

The last arrangement gives the franchisor the most control over the premises. The franchisee only deals with the franchisor. They lose their ability to control the premises and must rely on the franchisor to pay rent. However, it also means that the franchisor is exposed to more risk (e.g. if the franchisee abandons the premises), and they also have to look after the operational maintenance of the premises too.

How Can LegalVision Help With Your Franchise Leasing?

LegalVision’s franchise lawyers can assist both the franchisee and franchisor, irrespective of which leasing framework they decide to pursue. In particular, LegalVision can draft and review:

  • Lease agreements;
  • Deed of assignments/transfer of leases;
  • Step-in-deeds; and
  • Assist with lease negotiations.

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