Leasing franchise premises: what to negotiate before signing

Your chosen brand has approved the location, and the landlord wants to sign the lease quickly. This is precisely where the risk arises: you could commit to paying for premises where you never manage to open your franchise, or remain liable for rent after losing your licence. Before buying a franchise, therefore, do not assess the lease in isolation. Check that, together with the franchise agreement, it allows you to open the outlet, run it viably and leave on predictable terms.

1. Establish who is actually providing the premises

First, find out whether you will lease directly from the owner, sublet from the franchisor or secure the premises through another arrangement. Each option creates different dependencies. If you are subletting, request the relevant sections of the head lease, check that subletting is permitted and establish what happens if the head lease ends. A promise from the brand alone is not enough.

The Czech Republic has no specific franchise legislation or compulsory state register of franchises. Nor is there a standard mandatory pre-contractual disclosure document for franchises. However, the general pre-contractual disclosure duties and rules on fair dealing under the Czech Civil Code, Act No. 89/2012 Coll., do apply.

A franchise agreement is usually an innominate contract — one not specifically defined as a contract type — under that Code. A lease of business premises generally falls under its provisions on premises used for business purposes. Whether the premises are suitable for the intended use is also assessed under the Building Act, Act No. 283/2021 Coll., and related regulations; additional operational and hygiene requirements apply depending on the sector.

The European Code of Ethics for Franchising is a self-regulatory standard, not Czech law. It does not replace a review of your lease or automatically give you a right to exit it.

2. Make your commitment conditional on being able to open

The franchisor’s approval of an address does not mean the premises can legally and technically accommodate your planned operation. Before making any non-refundable payment, check the permitted use, necessary building alterations, electrical capacity, ventilation, delivery access and whether you can install signage.

Allocate responsibilities between yourself, the brand and the landlord. For each task, specify a deadline, the evidence required and the consequences of non-completion. A practical checklist includes:

• written approval from the brand of the specific premises and layout;
• the landlord’s consent to alterations, signage and the way the business will operate;
• confirmation of the permits required and technical feasibility;
• funding for building works and equipment;
• handover of the premises in the agreed condition.

Work with a lawyer to set appropriate conditions for the agreement to take effect, or a right to terminate it if a critical requirement is not met in time. Reflect the same arrangements in any reservation agreement for the premises and any agreement covering an advance payment. State explicitly which payments will be refunded if the outlet does not open.

Distinguish between the signing date, handover date, rent commencement date and opening date. A period free of base rent does not necessarily exempt you from service charges or utility costs.

3. Align the lease term with the licence and investment payback period

Compare the franchise licence term, the lease term and the loan repayment period side by side. A mismatch can work both ways: you may still be paying for premises you cannot use after the licence expires, or you may lose the premises while your franchise obligations remain in force.

It is not enough for both agreements to specify the same number of years. They may start on different dates and offer different early termination rights. In particular, check:

• whether you have an actual right to renew or merely the option to request renewal;
• when and how you must give notice of renewal;
• whether renewing the licence requires refurbishment or a new fee;
• how the rent will be set on renewal;
• whether the agreements contain compatible early exit provisions.

The end of a franchise agreement does not, in itself, automatically terminate a separate lease. If you want that link, you must agree it contractually with the relevant parties. The landlord may not accept every business-related reason for leaving; alternatives could include an agreed exit payment or the option to find a replacement tenant.

4. Calculate the cost of the premises, including mandatory alterations

Do not budget for base rent alone. Include service charges, utilities, the security deposit, any bank guarantee, insurance, maintenance, statutory inspections and the costs of handing the premises back. Review the VAT treatment and its cash-flow implications with your accountant.

For index-linked rent increases, check the index used, when increases take effect and any contractual cap. If the landlord also requires turnover rent, compare the definition of turnover with the one used to calculate franchise fees. Differences may arise, for example, in the treatment of refunds, deliveries or online orders.

Investment required by the brand deserves particular attention. Who will pay for a change to the outlet’s appearance during the lease? Can you remove equipment you have installed? Must you remove partitions and ventilation systems when you leave? Do not assume you will be compensated for your investment without checking the contract and applicable legal rules.

Prepare a downside scenario too: opening is delayed, sales are lower and rent rises. Your financial reserve must cover overlapping payment obligations, not just the refurbishment itself.

5. Plan for a sale and a clean exit

A future buyer of the outlet needs more than the equipment: they also need the right to trade under the brand and occupy the premises. Establish in advance which consents are required to transfer each agreement or change the ownership of the company. The brand’s approval does not replace the landlord’s consent where that is required.

Negotiate the handover procedure, settlement of the security deposit, removal of signage and release from personal guarantees. Selling the outlet does not necessarily release the original operator from all liabilities.

Practical takeaway: Before signing, create a single table covering both the lease and the franchise agreement: start date, end date, renewal, payments, investment and exit. Resolve every inconsistency in writing before paying any non-refundable sum.