Buying a franchise: reviewing the commercial lease

Premises may suit a franchise brand’s concept without the lease allowing you to operate on satisfactory terms. Before joining a franchise network in France, review this contract separately from any approval given by the franchisor. The aim is to confirm your right to occupy the premises, identify the costs you must bear and prevent property-related restrictions from holding back your business.

1. Check that the lease permits all planned activities

Ask for the signed lease, its appendices and all amendments. If you are taking over an existing business, also request previous assignment documents, significant correspondence with the landlord and any permissions for works. A summary prepared by the seller is no substitute for these documents.

Start with the permitted-use clause (clause de destination), which defines the activities allowed. Compare it with the operations the franchise concept actually involves: on-site sales, takeaway sales, food preparation, delivery, ancillary services or storage. Wording that appears close to your intended activity may exclude an important source of revenue.

If a change is needed, have the applicable procedure checked before committing. French commercial lease procedures for changing the permitted use, known as déspécialisation, may allow certain changes, but they do not give you unrestricted freedom to change activities without formalities.

Also check any co-ownership regulations governing the building, along with restrictions on nuisance, opening hours or deliveries. The franchisor’s approval does not constitute the landlord’s permission, and the landlord’s permission does not replace any necessary administrative approvals.

2. Establish the true cost of occupying the premises

Look beyond the advertised rent. Ask for the latest rent receipts, service charge reconciliations, available supporting documents and the terms governing rent reviews or indexation. Separate rent excluding VAT, service charges, any taxes passed on to you and one-off expenses.

The French commercial lease regime is set out in Articles L. 145-1 onwards of the Commercial Code (Code de commerce). For leases covered by the provisions introduced by the Pinel Act, Article L. 145-40-2 requires, among other things, a precise and exhaustive list of the categories of charges, taxes, duties and levies, showing how they are allocated between landlord and tenant. Article R. 145-35 prohibits certain expenses from being charged to the tenant, including major repairs within the meaning of Article 606 of the Civil Code (Code civil) and the professional fees associated with those repairs.

In particular, have the following reviewed:

• the allocation of property tax (taxe foncière) and communal charges;
• maintenance, security and management costs;
• the index used and the wording of the indexation clause;
• planned works to the building and how they will be funded.

For an older or renewed lease, check when the relevant rules became applicable. Ask your legal adviser and accountant to prepare a table distinguishing confirmed expenses, variable expenses and items that remain open to challenge. An inadequately documented charge should not be left out of your financial forecast simply out of optimism.

3. Allocate responsibility for works and obtain permissions

The concept may require a particular shopfront, air conditioning, an extraction system or changes to the layout. Turn these requirements into a schedule of works, then check each item against the lease provisions.

For each item, establish who commissions it, who authorises it, who pays and who is responsible for maintenance. Also clarify what happens to alterations and fittings at the end of the lease: do they remain in place without compensation, or must the premises be reinstated? An obligation to remove installations can represent a substantial expense, even if the franchisee paid for them.

Obtain the necessary written approvals before placing orders. Depending on the activity and premises, also check planning rules and the accessibility and safety requirements for premises open to the public, known in France as établissements recevant du public.

If the landlord promises to carry out works, have their scope, timetable and the consequences of any delay clearly specified. A general promise to hand over ‘compliant’ premises leaves too much uncertainty about each party’s obligations.

4. Check lease transfer arrangements and key dates

When taking over an existing operation, distinguish between buying the business and its assets as a going concern (fonds de commerce) and buying shares in the company that holds the lease. The implications for the lease are not the same. When a fonds de commerce is sold, Article L. 145-16 of the Commercial Code renders ineffective clauses seeking to prohibit assignment of the lease to the buyer of that business. This does not remove the need to comply with valid formalities set out in the lease.

Have the commencement date, key lease dates, any notices to terminate and any renewal requests identified. Compare this timetable with that of the franchise agreement: the right to use the brand does not guarantee that you can retain the premises for the whole period you want.

Finally, distinguish between the two legal frameworks. The lease is governed by French commercial lease law. For the franchise, the pre-contractual disclosure requirements introduced by the Doubin Act, codified notably in Article L. 330-3 of the Commercial Code, require, where the relevant conditions are met, delivery of the pre-contractual disclosure document (DIP) and draft agreement at least twenty days before signing or making the relevant advance payment. This protection is no substitute for reviewing the lease.

Key takeaway: before signing, insist on a complete set of property documents and written confirmation that the sensitive points have been checked: permitted activities, actual costs, works and transfer of the lease.