Buying a franchise: how to check the premises lease

Joining a franchise network does not automatically give you security over the premises where you will operate. Your franchise agreement may remain in force even if you lose the premises; equally, your lease may continue after you lose the right to use the brand. Before signing, check not only the address and rent, but above all your legal right to occupy the premises, how long that right lasts and what happens to the money you invest in alterations.

1. Establish who is actually providing the premises

First, clarify whether you will be leasing directly from the owner or subletting from the franchisor or another company. This is not just a matter of terminology: a sublease depends on the head lease. A promise from head office that the premises will be available to you long term does not remove that dependency.

Check ownership in the Czech property register and request a draft lease or sublease, including all appendices. If you are taking a sublease, you also need to review the head lease, particularly its term, termination provisions and permission to let another party occupy the premises. Seeing only the signature page is not enough.

Before investing, obtain documentation confirming:

• the precise extent of the trading premises, storage, back-of-house facilities and communal areas;
• the other party’s authority to lease or sublet the premises;
• any necessary consent to subletting and the conditions attached;
• the rules on access, deliveries and displaying brand signage;
• whether notice of termination has already been served or a dispute has arisen that could threaten your occupation of the premises.

If the landlord belongs to the same group as the franchisor, it is still a separate contracting party. A promise made by one company may not bind the other. Key provisions must therefore be agreed by the party that can actually secure your right to occupy the premises.

2. Align the lease term with the franchise agreement

The Czech Republic has no specific franchise legislation or compulsory registration of franchise agreements. A franchise agreement is usually concluded as an agreement not specifically defined by statute under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Depending on the nature of the relationship, occupation of the premises is governed by the general rules on leases and the provisions on leasing business premises, particularly Section 2302 onwards. A sublease must also be assessed against the head lease.

There is also no specific statutory franchise disclosure document with a fixed pre-signing disclosure period. General pre-contractual disclosure duties do, however, apply. Make an explicit request for the documents you need about the premises rather than waiting until the keys are handed over.

Set out the start and end dates of both agreements side by side, along with the grounds for termination, notice periods and deadlines for exercising any renewal options. Check whether renewal is an enforceable right or merely an opportunity to request fresh negotiations.

The end of the franchise does not, in itself, normally terminate the lease. Equally, losing the premises does not automatically release you from your obligations to the franchisor. Negotiate arrangements for both situations: an option to terminate the lease if the franchise ends, and rules for relocating or ending the franchise if you lose the premises. These are not automatic statutory rights, but terms that the relevant parties must agree to.

3. Calculate the cost of the premises, including handing them back

Rent alone does not reflect the full financial commitment. Include service charge payments on account, utilities, the deposit, any bank guarantee, management of communal areas and the mechanism for rent increases. If rent is linked to turnover, you need to know exactly how turnover is defined and verified.

Request the rules for reconciling service charges and any available statements from previous years. Check which costs the landlord allocates to tenants, how they are apportioned and whether you can inspect the supporting records. For new premises, work from a documented budget rather than a vague assurance that service charges will be low.

Pay particular attention to alterations. Under the Czech Civil Code, a tenant needs the landlord’s prior consent to alter the leased property; if the lease is in writing, that consent must also be in writing. The franchisor’s approval of the plans is no substitute for this consent.

Agree in writing who pays for the alterations, who obtains the necessary permits and how expenditure on improvements will be dealt with when the lease ends. In particular, check for any exclusion of compensation for improvements that increase the property’s value, and any obligation to restore the premises to their original condition. Removing partitions, service installations or a shopfront can mean further expenditure just when the outlet is no longer generating income.

4. Test what the agreements mean if you lose the premises

Before signing, work through three scenarios with a lawyer: the franchisor’s head lease ends, the landlord gives notice to terminate your lease, and the franchise ends before the lease does. For each, establish how long you can continue to occupy the premises, what you must keep paying and which investments remain unsettled.

If you are taking a sublease, consider negotiating a three-party agreement with the owner and the franchisor. This could cover notification that the head lease is at risk of ending, or the conditions for a possible move to a direct lease. The owner must agree to such an arrangement; a clause in the sublease alone will not bind them.

The review should produce a short list of specific changes, not merely a general assurance that the agreements look standard.

Practical takeaway: Invest in alterations only once you have a documented right to occupy the premises, aligned the terms of the agreements and calculated the costs of potentially having to leave.