Leasing franchise premises: what to check before buying a franchise

Choosing a brand without reviewing the lease for the premises can leave a prospective franchisee with an approved business but no way to operate at the chosen address. In franchising, commercial approval of a location is no substitute for a legal and technical review of the lease. Before taking on any commitments, check that the premises can accommodate the business and that the terms, costs and rights to remain there are consistent with your investment.

1. Confirm who is letting the premises and whether the business can operate there

Ask for an up-to-date copy of the property's title register and check that the person signing as landlord is the owner or has authority to represent them. Also establish who will be the tenant: you, the company operating the outlet, or the franchisor itself, which will then sublet the premises.

This distinction matters. With a sublease, the outlet's continued occupation also depends on the head lease. Ask to see its relevant terms, including its duration, grounds for termination and permission to sublet. Under Brazil's Law No. 8,245/1991, known as the Tenancy Law, assigning a lease, subletting or lending the premises for someone else's use requires the landlord's prior written consent.

Law No. 13,966/2019, Brazil's Franchise Law, sets out specific rules where a franchisor sublets premises to a franchisee. It allows the franchisor to charge more rent than it pays under the original lease, provided this possibility is clearly and expressly stated in the Franchise Disclosure Document (Circular de Oferta de Franquia, or COF) and the contract. The additional amount must not impose an excessive burden, preserving the economic and financial balance of the sublease.

Before paying for the premises, also confirm:

• whether the business activity complies with zoning and municipal rules;
• health, accessibility and fire safety requirements;
• building or complex rules restricting opening hours, noise, extraction systems and deliveries;
• whether the electrical, plumbing and structural capacity meets the business's needs.

The brand's approval of an address does not amount to authorisation from the public authorities. Obtain technical assessments where significant alterations are needed.

2. Compare the lease term with the franchise term

Set the start and end dates of the franchise agreement and the lease side by side. Include the fit-out period: rent may become payable before the outlet generates any revenue, using up part of the time available to recoup your investment.

A five-year lease does not, on its own, guarantee renewal. For commercial leases, Brazil's Tenancy Law provides a right to renewal subject to several conditions being met together, including:

• a written, fixed-term lease;
• a minimum term of five years under the lease being renewed, or across successive written leases with no gaps between them;
• at least three uninterrupted years operating in the same line of business.

Court proceedings to secure renewal must be brought between one year and six months before the lease expires. Simply starting negotiations during that period is not enough: if court protection is needed, there is a deadline for filing the claim. Other requirements and statutory grounds for the landlord to oppose renewal also apply, so each case needs an individual assessment.

Where the franchisor sublets the premises, the Franchise Law allows either the franchisor or the franchisee to bring renewal proceedings, subject to the legal conditions. Ask your lawyer to examine how this protection works within the proposed arrangement.

3. Calculate property costs beyond the rent

Prepare a separate spreadsheet for the premises. Distinguish between upfront payments, monthly expenses and potential exit costs. This lets you compare properties without mistaking low rent for low overall occupancy costs.

Include service charges, taxes and insurance allocated to the tenant under the lease, security arrangements, design work, licences, building work and maintenance. Check the rent adjustment index and how often it applies. In shopping centres, also examine any turnover-based rent, promotional charges and other obligations specific to the centre.

Pay particular attention to security: a deposit, a guarantor and rental guarantee insurance have different implications for available cash and assets. The Tenancy Law prohibits landlords from requiring more than one form of security under the same lease. A cash deposit must not exceed three months' rent and must be placed in a savings account, as required by law.

For building work, record who authorises, pays for and takes responsibility for each alteration. Check clauses covering compensation for improvements and the removal of fixtures and fittings. Do not assume the owner will reimburse you for adaptations required by the brand.

4. Negotiate protections before committing to the premises

Avoid signing an unconditional lease while essential approvals are still outstanding. With legal support, negotiate clear conditions covering situations such as the franchisor rejecting the location, technical obstacles or an inability to obtain licences.

The document should specify what supporting evidence is needed, the deadline for obtaining it and what happens to advance payments if the business cannot proceed. Also agree a rent-free period for the fit-out, making clear which charges are suspended and which remain payable.

Review penalties, notice requirements for leaving, obligations to restore the premises and rules governing a future transfer of the outlet. The brand's approval of a new franchisee does not replace any consent required from the landlord.

Practical next step: before completing the purchase, gather the franchise agreement, draft lease and budget for the adaptations. Proceed only once the terms, the suitability of the location and each party's responsibilities have been aligned in writing.