Buying a Franchise in Malaysia: Align Your Lease and Franchise Agreement

Buying a franchise usually involves two separate commitments: a franchise agreement and a lease for the premises. These may be signed with different parties, but your business depends on their terms working together. In Malaysia’s franchise market, this check matters because the right to use a brand does not necessarily guarantee the right to remain in the shop. Before committing, make sure you know who controls the premises, how long you can operate there and which liabilities will continue if either agreement ends.

1. Establish who actually holds the lease

Do not assume your company will be the tenant simply because you pay the monthly rent. The premises may be leased directly from the owner, sublet by the franchisor or occupied under another arrangement. Each structure gives you a different degree of control.

Ask for a copy of the draft lease and identify:

• The names of the property owner, the head tenant and the party receiving payment.
• Whether your company will be a direct tenant or a subtenant.
• The documents authorising subletting or use by the franchisee.
• Who is responsible for rent, maintenance charges and reinstating the premises.
• Any requirement to obtain the owner’s consent before alterations or signage are installed.

If the franchisor is the head tenant, review the head lease, not just the letter granting permission to use the shop. Ask a lawyer to assess the implications if the head lease ends or the franchisor fails to meet its obligations to the owner.

Also ensure that the permitted use of the premises matches your actual operations. Permission to run a retail business does not necessarily resolve every question about kitchens, deliveries, storage or operating hours. Obtain specific confirmation where the brand’s activities require these facilities or arrangements.

2. Align the dates and renewal rights in both contracts

Prepare a timeline showing when the lease begins, when rent becomes payable, the access period for fitting out the premises, when the franchise agreement begins and when each agreement ends. Add the deadline for giving notice to renew the lease.

The aim is not simply to make both terms the same length. You need to know whether your right to occupy the premises is sufficient to meet your operating obligations under the franchise agreement.

For example, if the lease ends first, you may still be obliged to operate the franchise but have no premises. If the lease continues after your franchise rights end, you may still have to pay rent even though you can no longer use the brand.

Ask the following questions in writing:

1. Is the option to renew the lease genuinely a tenant’s right, or does it depend on fresh consent from the owner?
2. How will the rent for the renewal period be determined?
3. Does relocation require the franchisor’s approval, and what is the process?
4. Who bears the costs if the premises are no longer available?

Do not assume that a franchisor’s promise that “you can use this shop for years” binds the property owner. That right must be supported by documents signed by the party authorised to grant it.

3. Distinguish franchise compliance from rights over the premises

Malaysia specifically regulates franchising through the Franchise Act 1998, as amended, including the 2020 amendments. Official registration guidance lists disclosure documents, a sample franchise agreement, an operations manual and a training manual among the documents required for a registration application.

Under Section 15, the franchisor must provide the prospective franchisee with the disclosure documents and a copy of the franchise agreement at least 10 days before the agreement is signed. Use this review period to read the premises-related obligations alongside the draft lease, rather than in isolation.

However, franchise registration is no substitute for checking your right to occupy the premises. It does not, in itself, establish that subletting is permitted or that the owner has approved every use required by the brand.

Ask a lawyer to check for clear conflicts. For example, the operations manual may require particular opening hours while building rules restrict access. The franchise agreement may also require layout changes that need the owner’s consent.

Resolving these issues may require amendments to the lease, the owner’s written consent or changes to the franchise documents that comply with legal requirements. One party’s consent does not necessarily change your obligations to another.

4. Test your liabilities if use of the premises is disrupted

Before signing, work through several scenarios: the owner declines to renew the lease, the building needs major works, the franchisor loses the head lease, or your right to use the brand ends while the lease remains in force.

For each scenario, record whether rent remains payable, whether operations can be relocated, whose consent is needed and who pays the relocation costs. Do not assume that closing the shop automatically stops rent or franchise payments.

Include your obligations when handing back the premises. Removing signage, stripping out bespoke fittings and restoring the original condition can involve more than simply vacating the shop. Obtain an estimate based on the actual terms, rather than assuming all fixtures and fittings can be left behind.

Negotiate appropriate protections, such as a relocation approval process or a mechanism for release from the lease in specified circumstances. These are proposed contractual protections, not automatic franchisee rights. If they are not agreed, assess whether you can afford the remaining commitments.

Practical takeaway: before buying, place the franchise agreement and lease side by side. Proceed only when your rights to use the premises, the duration of your commitments and your exit liabilities are clear enough to assess together.