Buying a Franchise in Canada: Checking the Commercial Lease

Buying a franchise does not guarantee that you will be able to occupy your premises for as long as you need. The franchise agreement and commercial lease create separate obligations that must work together. Before joining a franchise network, examine your right to occupy the premises as carefully as your right to use the brand.

1. Identify who holds the lease

Start with a simple question: who signs the lease with the building’s owner? You may be the direct tenant, or a subtenant of the franchisor or a related company. These arrangements give you different levels of control over your location.

With a direct lease, you take on the obligations towards the landlord. However, the franchisor may still require the right to approve the premises or put an agreement in place allowing it to step in if you fail to meet certain obligations. Ask for all the documents governing this relationship.

With a sublease, your occupancy also depends on the head lease. Do not review the sublease alone: have the head lease, any amendments and permission to sublet, where required, examined too. Check what would happen if the franchisor stopped paying rent or lost its own right to occupy the premises.

In particular, obtain:

• the draft lease or sublease and its schedules;
• any applicable amendments and supplementary agreements;
• the necessary landlord consents;
• any documents giving the franchisor takeover or step-in rights.

The franchisor’s approval of the premises is no substitute for your own legal due diligence.

2. Align the key dates and conditions

Map out a single timeline covering possession, fit-out works, the start of rent payments, the planned opening and the expiry of both agreements. Identical terms on paper do not mean that the key dates align. The lease may start during the fit-out, while the franchise agreement takes effect on a different date.

Ask your lawyer to examine two scenarios: the lease expires before the franchise agreement, and the franchise agreement ends before the lease. In the first case, you could have to relocate without an approved site. In the second, you could remain liable to pay for premises where you can no longer operate under the brand.

Also check any options to extend the lease: who can exercise them, by what date and on what conditions? A right held by the franchisor under the head lease does not automatically become your right under the sublease.

Before making any commitment, clarify the conditions needed for the project to proceed: site approval, funding, permits and handover of the premises. A letter of intent or an offer to lease may contain binding commitments; its title alone does not establish that it has no legal consequences.

3. Calculate the true cost and assess the restrictions on the premises

The advertised rent is only part of the cost of occupying the premises. Ask your accountant to break down the base rent, additional charges, applicable taxes, utilities, insurance and maintenance expenses for which you will be responsible.

Request any available budgets and, for previously occupied premises, historical statements of recoverable charges. Check how these charges are allocated and reconciled, and whether the lease allows you to verify the calculations. A forecast budget is not necessarily a contractual cap.

Responsibility for works also needs careful scrutiny. Who pays if the heating fails, the roof needs repairing or the electrical system needs upgrading? Which improvements must remain when you leave? Does the lease impose costly reinstatement obligations?

Finally, compare the property restrictions with the brand’s requirements: permitted use, opening hours, signage, deliveries, parking and access. Look for any clause allowing the landlord to relocate you or terminate the lease for redevelopment. An attractive location may lose its appeal if its terms prevent you from operating as planned.

4. Check disclosure requirements and the consequences of default

Franchise rules vary by province. In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 requires, subject to applicable exceptions, a disclosure document to be provided at least 14 days before a franchise-related agreement is signed or a payment is made to the franchisor.

Among other things, this document must set out the costs and include the relevant draft agreements. Ask your lawyer to check how the lease, sublease and property-related commitments fit within the disclosure obligations. Do not assume that a lease presented separately necessarily falls outside this assessment.

Quebec has no specific franchise disclosure legislation: the general provisions of the Civil Code of Québec apply, including those governing contractual relationships and leases.

In all cases, look for clauses linking a default under the lease to a default under the franchise agreement, or vice versa. Have your lawyer explain the required notices, the time allowed to remedy a breach and the franchisor’s rights to step in.

Key takeaway: before signing, obtain a coordinated review of the lease and franchise agreement, a shared timeline and a complete occupancy budget. Neither agreement should be assessed in isolation.