Buying a franchise: aligning your lease and site approval

Joining a franchise network often means securing your own business premises. This creates a risk that is easily underestimated: you may already be bound by the lease before the franchisor has approved the site or the intended use has been authorised. So assess not just the property, but also how the franchise agreement, lease and regulatory requirements fit together.

1. Clarify responsibilities before looking for a site

A site recommendation from the franchisor is no substitute for a technical assessment or approval from the relevant authorities. Nor does internal site approval automatically mean that the premises are suitable for your plans. Ask for a written explanation of what the approval covers: just the catchment area, or also the layout, delivery access, technical facilities and fit-out to franchise specifications?

Also establish who your landlord will be. If you rent directly from the owner, the franchisor and landlord remain separate contracting parties. If you rent from the franchisor or an associated company, you should also have the head lease and the right to sublet checked. The end of the head lease could put your occupation at risk; in principle, once it ends, the owner can also require a subtenant to give up possession.

Before making a binding commitment, request at least the following documents:

• the full draft lease, including all schedules and attachments;
• the franchise network’s written site requirements;
• existing floor plans and documents showing the authorised use;
• a schedule of necessary alterations and utility connections;
• if subletting, the provisions of the head lease relevant to your occupation and use.

Important: An estate agent’s statement such as “these premises can be used for catering” is not sufficient evidence. Use the documentation to establish what use is actually permitted with the relevant authority and, where necessary, an architect.

2. Understand the legal framework

Germany has no specific franchise law and no government franchise register. Franchise agreements are governed primarily by the German Civil Code (BGB) and, where applicable, the German Commercial Code (HGB). Pre-contractual duties of protection and disclosure arise in particular under sections 311(2) and 241(2) BGB, alongside the principle of good faith under section 242 BGB. A trade association’s code of ethics is not legislation and does not replace a site assessment.

Business premises are subject to the tenancy provisions of the BGB, particularly sections 535 onwards and section 578. Unlike residential tenancies, commercial leases allow considerable freedom of contract. Do not therefore rely on protections you may know from renting your home.

Standard contract terms may also be subject to legal scrutiny in business-to-business agreements, particularly under section 307 BGB, taking section 310 BGB into account. Whether a clause is invalid depends on the circumstances of the individual case. An agreement is not invalid simply because it is commercially unfavourable.

Public-law requirements must also be met, including planning and building regulations and any licences required for the particular activity. The landlord’s consent does not replace these. Conversely, approval from an authority does not automatically entitle you to make alterations prohibited by the lease.

3. Coordinate contractual commitments, approval and the start of rent payments

Before signing, draw up a coordinated timetable for both agreements. Assign responsibility and a realistic deadline for each stage: site approval, necessary permits, handover, fit-out and opening. The key question is which payment obligations will already apply if any stage fails to happen.

Discuss appropriate safeguards with a lawyer. Options may include conditions that must be met before the agreement takes effect, or contractual rights to withdraw if a precisely specified permit or site approval is not obtained in time. Such arrangements need to be agreed with both contracting parties: a clause in the franchise agreement does not automatically release you from the lease.

In particular, agree the following:

• Start of rent payments: Is rent payable from signing, handover or only after an agreed fit-out period?
• Delays: Who bears the costs if the premises are handed over late or necessary documents are missing?
• Fit-out: Who commissions and pays for the work, and who will own the fixtures and fittings?
• Deadlines: By when must conditions be met, and how will this be evidenced?

Also compare the periods secured by each agreement. If the franchise agreement runs longer than the lease, you need a dependable basis for continued access to the premises. If the lease runs longer, you risk paying rent without being able to operate the franchise. A mere prospect of renewal is not the same as a legally effective renewal option.

4. Assess site costs and permitted uses together

The base rent accounts for only part of the cost of the premises. Also budget for the deposit, service charges and other outgoings, any VAT, alterations, maintenance obligations and the contractual allocation of repair costs. Check any index-linked or stepped rent provisions, as well as obligations to reinstate the premises. Their financial impact should inform your choice of site, not just your subsequent operating plans.

Next, compare the permitted use under the lease with the actual franchise concept. Does it cover takeaway sales, delivery services, external signage, customer visits or particular opening hours? Can the ventilation system be installed? Are deliveries and waste disposal practical? Resolve any inconsistencies before signing.

Have the draft franchise agreement and lease reviewed together. Two agreements that each make sense on their own can leave significant gaps when combined. Record outstanding issues in a short list identifying who is responsible, the deadline and the evidence required.

Practical takeaway: Only commit once site approval, permitted use, the start of payments and the secured period of occupation are aligned. If any requirements remain outstanding, you need expressly agreed safeguards—not verbal assurances.