Hong Kong Franchise Lease Guide: Lease Term Mismatches, Subletting Restrictions and Relocation Rights

Buying franchise rights and securing the right to occupy premises are two separate matters. The brand’s approval of a location does not mean the landlord has approved the operating arrangements; nor does an unexpired franchise agreement mean the lease can continue. Before entering the Hong Kong franchise market, review both contracts together to avoid being left with ongoing franchise obligations but nowhere to trade.

1. Establish who the tenant is and your legal basis for occupying the premises

The franchisee may lease the premises directly, or the franchisor may lease them and allow the franchisee to use them. These arrangements differ in terms of control, who receives payments and the risk of losing the premises. Do not assume it is safe to pay simply because the franchisor says it will “take care of the premises”.

If you lease directly, check that the tenant named in the lease is the company actually operating the business, and that the permitted use accommodates the brand’s operating model. The franchisor’s approval of a location is no substitute for the landlord’s consent or statutory approvals. Signage, opening hours, takeaway collections and alterations to the premises may also be restricted by the lease or building rules.

If the franchisor provides the premises, ask to see at least the relevant provisions of the head lease and any necessary written consents, and clarify:

• Are you being granted a sublease, a licence to occupy or some other occupancy arrangement? The document’s title alone is not enough to establish this.
• Does the head lease restrict subletting, sharing occupation or parting with possession of the premises?
• Who receives the rent and deposit, issues receipts and is responsible for returning the deposit?
• Can you continue occupying the premises if the franchisor breaches the head lease or the head lease ends?

Promises in a franchise agreement generally cannot directly bind a landlord who has not signed it. Where protection depends on the landlord’s consent or a direct tenancy, obtain the corresponding documents rather than relying solely on the franchisor’s verbal explanation.

2. Compare the lease and franchise terms on a single timeline

Do not simply compare the number of years stated in each contract. List the premises handover date, rent commencement date, lease expiry date, franchise start and end dates, and the deadline for giving notice to renew the lease. Then check for any gaps.

If the lease ends before the franchise agreement, you may still have to pay franchise fees or meet obligations to operate after losing the premises. If the lease runs for longer, you may remain liable for rent and for handing back the premises even after you can no longer use the brand.

Be clear about what “renewal” means: is it a contractual right you can exercise if certain conditions are met, or merely a right to negotiate first? How the rent is determined, when notice must be given and whether all lease obligations must first have been fulfilled can affect whether renewal is possible. The brand’s agreement to renew the franchise does not guarantee that the landlord will renew the lease.

Before paying, consider negotiating provisions that link the two arrangements: what happens to the franchise arrangement if you cannot secure a lease on the agreed terms; and whether you may relocate, suspend trading or end the relationship through a specified procedure if the lease expires normally and cannot be renewed. These protections must be negotiated; they are not automatic rights.

3. Agree the relocation procedure before you lose the premises

Relocation involves more than finding another shop. A new location may require the franchisor’s approval and may affect territorial arrangements, premises specifications and operating costs. If the contract merely says that “relocation requires approval”, without setting out timescales or criteria, it will be difficult for the franchisee to budget realistically.

Seek clear written provisions covering:

• Application requirements: What site information must you submit, how quickly must the franchisor respond, and must it give reasons for a refusal?
• The search period: Can you suspend trading, would suspension constitute a breach, and which fixed fees will continue to be charged?
• Failure to relocate: What steps can either party take if no suitable premises are found within the agreed period?
• Allocation of responsibility: Different arrangements should apply depending on whether the premises are lost because the landlord refuses to renew, the franchisee falls into rent arrears or the franchisor fails to meet its obligations under the head lease.

Your cost schedule should also cover the deposit for the new premises, overlapping rent on both sites, removal costs, reinstatement of the original premises and expenses during the closure. Do not assume the old deposit will be returned in time to fund the new one. Set aside funds based on the actual payment and refund terms of both leases.

4. Understand the scope of legal protection in Hong Kong

Hong Kong has no franchise-specific legislation governing the sale of franchise rights, nor any statutory pre-sale disclosure or dedicated registration regime for franchise agreements. Franchise relationships are governed primarily by common law principles of contract and applicable legislation, including the Misrepresentation Ordinance. Premises arrangements also require consideration of applicable property and tenancy law, including relevant provisions of the Landlord and Tenant (Consolidation) Ordinance.

The absence of franchise-specific legislation does not mean there is no legal protection. Equally, you should not assume that the law gives commercial tenants an automatic right to renew, or automatically releases you from franchise obligations if you lose the premises. Your actual rights depend on the lease, franchise agreement, relevant consent documents and specific circumstances.

If the franchisor claims that “the landlord has approved subletting” or “the lease covers the full franchise term”, ask for written confirmation and check the documents. Misrepresentation may give rise to legal remedies, but this depends on what was said, whether it induced you to enter into the contract and other legal requirements. Discovering a discrepancy does not, by itself, mean you can simply stop paying.

Practical summary: Before paying, ask a Hong Kong solicitor to review the franchise agreement, lease and occupancy documents together. Confirm three things: that you have the right to use the premises, that the terms of the two contracts align, and that there is an enforceable plan for dealing with the loss of the premises.