Buying a franchise: align your lease with your franchise agreement

When joining a franchise network, securing premises may seem like a practical matter to deal with after the franchise agreement. In reality, the lease can create one of your largest long-term liabilities. Before buying a franchise in Finland, make sure that your right to use the franchise concept and your obligation to pay for the premises start, continue and end in a coordinated way. A location approved by the franchisor does not, on its own, protect you against rental liabilities.

1. Establish who you are contracting with for the premises

Start by checking the parties to the contract. Will you rent directly from the property owner, the franchisor or another head tenant? A rent negotiated by the franchisor does not mean that the franchisor is responsible for paying it. What matters is which company is named as the tenant and what separate commitments you are required to give.

Ask to see the actual lease and all its annexes. If the arrangement is a sublease, also check the term of the head lease, whether subletting is permitted and how the end of the head lease would affect your own right to occupy the premises. Do not assume that the franchise agreement guarantees access to the premises throughout its term.

Check at least the following:

• Who pays the rent, deposit and separate maintenance charges?
• Are you required to provide a personal guarantee or other security?
• Who is responsible for refurbishment, maintenance and reinstatement?
• Can the landlord charge you even during a period when the outlet cannot open?

Record each company's responsibilities. If the franchisor promises to contribute to costs, agree in writing on the amount, when it will be paid and any repayment conditions.

2. Understand the legal framework for the agreements

Finland has no specific franchising act, no statutory franchise disclosure document in a prescribed format and no franchise agreement registration system. Agreements within a franchise network are governed by general legislation, including the Contracts Act, the Unfair Business Practices Act, the Competition Act and the Trademarks Act. Commercial leases are governed in particular by the Act on Commercial Leases.

Under the Contracts Act, an unreasonable contractual term may, in certain circumstances, be adjusted or set aside. However, you should not base your purchase decision on this possibility: a business-to-business contract will not automatically be amended after the event. Nor should you assume that consumer cancellation rights apply to a franchise agreement or commercial lease entered into for business purposes.

The European Code of Ethics for Franchising is an industry self-regulatory code, not Finnish legislation. Find out whether the franchisor has committed to it and how that commitment is reflected in the agreements. Invoking the code does not, in itself, end a separate rental liability.

The key practical principle is this: the end of the franchise agreement does not automatically end the lease. The relationship between the two contracts must be assessed, and any necessary linking provisions negotiated separately.

3. Align start dates, contract terms and exit routes

Put the timelines for both agreements on the same page. Mark the signing dates, handover of the premises, start of rent payments, planned opening, expiry dates and deadlines for renewal and termination notices. This will help you spot periods when you could be paying for premises before you are entitled to operate the franchise.

A fixed-term lease is generally binding for the agreed period. Do not assume that you can end it simply by giving ordinary notice if the business fails to launch or the franchise relationship ends. Renewal options also need attention: a unilateral right for you to extend the lease is different from a promise to negotiate an extension.

Protections you could negotiate include:

• making the lease conditional on the franchise agreement and financing being secured;
• a right to withdraw on agreed terms if essential permits or approval for the intended use cannot be obtained;
• a specifically defined right to terminate when the franchise agreement ends;
• the ability to transfer the lease to an acceptable replacement operator.

These are not automatic rights: they must be agreed. Approval from the franchisor alone does not bind an independent landlord. Have a lawyer check that the provisions work together before you sign.

4. Calculate your premises liabilities if things go wrong

Assess premises costs separately from the franchise's initial and ongoing fees. The monthly rent alone does not reflect your total liability. Check rent reviews, maintenance charges, any VAT and whether it is recoverable, the funds tied up in the deposit and costs incurred during refurbishment.

Prepare calculations for three scenarios: the business opens as planned, opening is delayed, and the franchise relationship ends before the lease expires. In the last scenario, allow not only for the remaining rental liability but also for removing fixtures and fittings, taking down franchise branding, reinstating the premises and any equipment or finance agreements.

In particular, establish who owns the structures and equipment installed in the premises. A fit-out you have paid for may not be transferable to another location, and the landlord may not compensate you for it. Changes to the franchise concept could also require further investment during the lease term.

Review the figures with your finance provider before committing. A rent deposit and personal guarantee can put pressure on the same assets you need as security for a business loan. Do not treat subletting the premises as a guaranteed solution unless both the lease terms and actual market demand support it.

5. Make signing a considered decision

Finally, bring together the franchise agreement, lease, refurbishment contract and financing terms. Check that protection promised in one document is not undermined by a provision in another. For example, the franchisor's approval of a delayed opening does not necessarily postpone the start of rent payments.

Ensure that all material changes are included in the documents to be signed. Also confirm who is authorised to sign on behalf of the company and when any advance payments will be refunded if an agreed condition is not met. Do not assume that a reservation agreement or letter of intent is entirely non-binding simply because of its title.

Practical reminder: do not commit to premises for longer than you can reasonably bear the risk. Confirm in writing what happens to the premises, rent and security if the franchise business cannot start or continue operating.