Buying a Franchise: Align Your Premises Lease and Franchise Agreement

A busy location is not necessarily a safe choice for a franchise. You may already have paid the rent while the franchisor’s approval is still pending, refurbishment is delayed, or the building turns out to be unsuitable for your intended use. Prospective franchisees need to align two separate relationships: their agreement with the franchisor and their agreement with the landlord. This guide helps you check both before committing capital.

1. Establish who has the right to let the premises

Do not assume that the person offering the premises is authorised to let them. Ask for proof of ownership or authority to manage the property, identification for the signatory, and a power of attorney if a representative is handling the transaction. For premises owned by a company, check the signatory’s authority against the company documents.

If the premises are being offered by a head tenant rather than the owner, check whether the head lease permits subletting. Also make sure the head tenant’s remaining lease term is long enough. Your agreement cannot simply guarantee continued use of the premises once that party’s rights expire.

Next, check whether the premises meet the brand’s requirements. Draw up a written checklist covering:

• Electrical capacity, water supply, waste disposal and ventilation.
• Delivery access, parking and storage space.
• Permission to install signage and alter the building’s frontage.
• Opening hours permitted by the property manager.
• Restrictions on activities, noise or the use of certain equipment.

Obtain written approval of the location from the franchisor. This confirms that the location meets the brand’s standards, but does not replace checks on the building’s legal status or business licensing requirements.

2. Match the lease term to the term of your franchise rights

Create a single calendar showing the premises handover date, the start of refurbishment, the date rent becomes payable, the target opening date, and the start and end dates of the franchise agreement. Mismatched dates can leave you paying costs without revenue, or tied to a lease after your right to operate under the brand has ended.

If the lease expires first, you risk having to relocate while the franchise agreement is still in force. If the franchise agreement expires first, your rental obligations may continue even though you must stop using the brand. Do not assess alignment solely by the number of years: compare the effective dates of both agreements.

Check what the renewal clauses actually mean. Wording such as “may be renewed by mutual agreement” does not offer the same certainty as a renewal mechanism with clearly defined conditions, notice deadlines and a method for setting the rent.

Put the following questions to both parties:

• Does the franchisor need to approve renewal of the premises lease?
• When must a renewal request be submitted?
• How are rent increases determined?
• What happens if the owner sells the building?
• Who pays for alterations to the premises if outlet standards change?

Include the answers in your business projections. Do not assume that rent will remain unchanged or that renewal is automatic unless the documents support those assumptions.

3. Make site readiness a condition of major payments

Payment for premises is often requested before franchise due diligence is complete. To reduce your risk, propose staged payments tied to concrete milestones rather than sales deadlines alone.

For example, negotiate for the main payment to fall due only after the authority of the party letting the premises has been verified, the franchisor has approved the location, and the suitability of the premises for the intended use has been checked. If a reservation payment is required, record its purpose, the deadline for checks and the circumstances in which it can be refunded. Do not rely on verbal promises that the money will definitely be returned.

Indonesia has specific franchise rules under Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. The regulation requires franchisors to provide prospective franchisees with an offering prospectus at least 14 calendar days before the franchise agreement is signed. Use this review period to assess the readiness of the premises, not just the brand’s offer.

The regulation also covers the Franchise Registration Certificate, known as the STPW (Surat Tanda Pendaftaran Waralaba). However, an STPW does not replace checks on building-use requirements or the licences needed to conduct business at the location. Confirm the requirements through Indonesia’s Online Single Submission (OSS) system and the relevant local authorities, taking account of the type of business and the condition of the premises.

Conditions governing payments and refunds for the premises must be negotiated separately. Do not assume that franchise disclosure rules automatically give you the right to cancel a lease or recover a reservation payment.

4. Allocate responsibility for delays to opening

Before signing, prepare a simple table setting out each task, the responsible party, the deadline, evidence of completion and the consequences of delay. Distinguish between the work assigned to the landlord, franchisee, contractor and franchisor. Design approval, for example, is separate from carrying out the refurbishment.

Agree the handover condition of the premises in writing: whether they will be empty or equipped, whether installations will be working, and who will repair any existing damage. Document a joint inspection with photographs and a formal written record so that any dispute does not depend on recollection.

Also negotiate when rent starts to accrue and whether a rent-free fit-out period is available. Check which charges will still apply during that period, such as service charges and utilities. If handover is delayed, propose clear adjustments to the schedule and an explicit allocation of the resulting costs.

Practical step: before making a substantial payment, bring together the location approval, premises inspection findings, a calendar covering both agreements, and the allocation of responsibilities. If any gaps remain, resolve them in writing with help from a legal adviser before committing your capital.