Franchise Premises: Align Your Lease Terms

When joining a franchise network, it is easy to focus on the brand and business model while overlooking the separate risks of leasing premises. The right to operate is of little use if you cannot fit out your chosen premises to the required standard, or if the lease could end before the franchise agreement. Before investing, review the two agreements together: do they provide a workable framework for the same location, activities and timeframe?

1. Check who is granting the right to use the premises, and for what purpose

First, identify the landlord and have their legal authority to let the premises checked. The property register extract is an important starting point, but it is not a substitute for full due diligence. If you are not contracting directly with the owner, also ask for evidence of authority to act on the owner's behalf or of the right to sublet.

Take particular care if the franchisor leases the property and offers you a sublease. In this case, request verifiable information about the term of the head lease, how it can be terminated and whether subletting is permitted. Clarify what happens to your position if the franchisor's lease ends. The franchise agreement alone does not give you a direct claim against the property owner.

The permitted use should not simply say “business activities” if your operation requires more specific terms. Check, for example:

• whether the planned retail or service activity is permitted;
• whether the necessary ventilation, water supply and electrical capacity can be provided;
• whether you can install signage and window displays;
• whether deliveries, waste management and the required opening hours can be accommodated;
• what regulatory procedures, notifications or consents from the building's owners' association may be needed.

The brand's approval of a site is neither regulatory permission nor the landlord's consent. These three matters must be dealt with separately, preferably before you incur any non-refundable expenditure.

2. Align the terms and binding commitments

Create a single timeline covering both the franchise agreement and the lease. Mark the handover of the premises, the fit-out period, the date rent becomes payable, the planned opening and the expiry of both agreements. Include deadlines for giving notice of termination or exercising renewal rights.

If the lease is shorter, you may face uncertainty over where you can fulfil your franchise obligations for the remaining period. If it is longer, you could still be paying for premises after your right to use the brand has ended, with costly alterations needed to put them to another use. Different terms are not necessarily a deal-breaker, but the risk should be consciously accepted and factored into your budget.

Do not treat a landlord saying they would be “happy to continue” as a guaranteed renewal. Check whether you have an actual right exercisable on predetermined terms, or merely a promise of future negotiations. Similarly, check whether any relocation would require the franchisor's approval.

Hungary has no standalone, comprehensive franchise act, but that does not mean the relationship is unregulated. Sections 6:376–6:381 of Act V of 2013, the Hungarian Civil Code, govern franchise agreements. General contract rules, including duties to cooperate and provide information, are also important. For commercial premises, the relevant provisions of Act LXXVIII of 1993 must be considered alongside the Civil Code's rules on leases.

There is no universally mandatory, standardised franchise disclosure document or franchise-specific statutory waiting period. Do not therefore assume that someone will automatically compile the site's contractual risks for you.

3. Calculate the full cost of the premises

The monthly base rent is only one item. Request a detailed breakdown of costs and clarify whether each amount includes or excludes VAT. Your calculations should separately identify the security deposit, operating charges, shared building charges, utility billing and any compulsory additional services.

Check the formula and timing for rent adjustments, as well as any foreign exchange exposure. If rent is linked to turnover, ask which sales are included in the calculation, particularly online orders and collections from the premises. Rent and franchise fees both draw on the same business income.

Allocate fit-out costs in a responsibility matrix. Who pays to remedy basic technical deficiencies, create the branded interior, commission designs and obtain the necessary consents? If the landlord offers a contribution, check when it becomes payable, what supporting documents are required and when it can be reclaimed.

Also assess the cost of leaving the premises in advance. It matters whether you must leave fixtures in place, may remove them or must restore the premises to their original condition at your own expense. Ask for the conditions and procedure for settling and returning the security deposit to be recorded in writing too.

4. Do not make an unconditional commitment to an uncertain site

Work with your lawyer to structure the sequence of agreements so that you are not left with two incompatible commitments. If brand approval, a technical survey or a necessary consent is still outstanding, negotiate conditions that must be met before the agreement takes effect, or clearly defined termination rights.

For every condition, specify who is responsible, the deadline and how compliance will be evidenced. Also record what happens to payments already made and the cost of work already completed if the site ultimately proves unusable. A refund does not follow automatically simply because the business fails to open.

When taking over an existing business, do not assume that buying its assets also makes you the tenant under its lease. A separate agreement, consent or new lease may be needed. The franchisor's acceptance is no substitute for this.

Practical takeaway: commit to the premises only once your lawyer has reviewed the lease and franchise agreement together, their suitability for your intended use is clear, and the full cost of the premises fits your business plan.