Franchising and commercial premises: agree lease responsibilities before expanding

When you turn your existing business into a franchise network, commercial premises are more than just an address. They affect the franchisee’s costs, the customer experience and how easily the business model can be replicated in a new location. Before reserving your first premises, establish who will take on the lease, what conditions the premises must meet and how the lease will align with the franchise agreement. A leasing arrangement that works well for your current outlet may not suit new franchisees in the network.

1. Turn the features of your current premises into selection criteria

Start by separating essential business requirements from the incidental features of your current premises. How customers use the premises, goods deliveries, staff working arrangements and the technical requirements of equipment matter more than a matching shopfront.

Divide your premises criteria into three groups:

• Essential features: for example, a permitted use suitable for the business, adequate ventilation, compliance with accessibility requirements, and sufficient electricity and water connections.
• Financial limits: total rent, running costs, the deposit, alteration costs and any other charges associated with using the premises.
• Desirable features: visibility, parking, nearby amenities and scope for future expansion.

Assess premises costs as a whole. A low base rent is little help if the franchisee has to fund a major ventilation upgrade or pay rent throughout a lengthy fit-out without any sales revenue. Include any reinstatement obligations the landlord may enforce at the end of the lease.

Record each premises approval decision and the reasons behind it. If you depart from your own criteria, document the implications for operations and costs. This ensures that the next premises in the franchise network are not approved on first impressions alone.

Visit prospective premises outside normal customer opening hours as well. Service vehicle access, waste collection, noise restrictions and building-wide opening arrangements can affect feasibility. Request technical information in writing: a general assurance of suitability during a viewing is no substitute for checking the permitted use and building systems.

2. Decide who takes on the lease obligations

A common option is for the franchisee to enter into a lease directly with the property owner. The franchisee is then responsible for the rent and other agreed obligations. The franchisor may assess whether the premises suit the concept, but approval alone does not make the franchisor a party to the lease or a guarantor.

Another option is for the franchisor to lease the premises and make them available to the franchisee under a separate arrangement. This can make it easier to retain a key location within the network, but it may leave the franchisor liable for rent even if the franchisee ceases trading. The conditions for allowing another party to occupy the premises must be checked against the head lease and applicable law.

Set out the allocation of responsibilities before negotiations begin:

• Who pays the deposit and provides any additional security?
• Who commissions alterations and obtains the necessary approvals?
• Who owns fixed fittings and removable equipment?
• Who is responsible for maintenance, insurance and repairing damage?
• Who bears the costs if opening is delayed?

If the franchisor is asked to provide a guarantee, treat it as a separate financial commitment. Where appropriate, limit the amount and duration of liability and define when it ends. Supporting a franchisee does not require taking on unlimited lease risk.

3. Align contract timelines and account for Finnish rules

Finland has no specific franchising act, statutory franchise register or requirement to provide a franchise disclosure document in a prescribed format. General legislation applies to the agreements, including the Contracts Act and the Unfair Business Practices Act. The Competition Act and EU competition rules must also be taken into account where applicable. The Finnish Franchising Association’s Code of Ethics is a form of self-regulation, not legislation enacted by a public authority.

Commercial leases are governed by Finland’s Act on Commercial Leases. Contract terms play a significant role, so particular care is needed when reviewing the duration, termination on notice, termination with immediate effect, maintenance obligations and arrangements for transferring use of the premises to another party. A fixed-term lease cannot generally be ended early simply by giving notice.

Compare the lease and franchise agreement side by side. If the franchise agreement ends before the lease, the franchisee may still have to pay for premises without the right to use the network’s branding and concept. If the lease ends first, the business may lose its approved location while the franchise relationship is still in place.

Do not assume that ending one agreement automatically ends the other. Any exit, renewal or transfer arrangements must be agreed with the relevant parties. A clause in the franchise agreement alone does not oblige an external landlord to accept a new tenant.

4. Introduce a written premises approval process

Define a clear sequence: an initial premises search, technical assessment, cost estimate, contract review and final approval. Tell prospective franchisees at what stage they may make a binding offer or sign a lease.

Check with the municipality’s building control authority and any other relevant authorities whether the premises are suitable for the intended use and which permits or notifications are required. The landlord’s consent does not replace regulatory requirements. Equally, the franchisor’s approval of the premises for the concept is not a promise that a permit will be granted.

If you need to commit to premises before the assessments are complete, negotiate the necessary conditions in writing. These might include obtaining the relevant permit, securing finance or gaining approval for alterations. At the same time, specify deadlines, acceptable supporting evidence and the consequences if a condition is not met.

The approval file should include a floor plan, technical assessments, a cost estimate, a table allocating responsibilities and the key dates in both agreements. Appoint someone to ensure that outstanding issues are resolved before any commitment is made. Update the file before opening if the scope of the refurbishment or the delivery timetable changes.

Practical takeaway: approve commercial premises only once their suitability, total costs and contractual obligations have been assessed together. A good location supports the growth of a franchise network only if the obligations attached to it are manageable.