Buying a franchise: align your lease and franchise agreement

The right location can be a deciding factor when buying a franchise. But attractive premises alone do not provide a secure foundation. If your lease and franchise rights are not aligned, you could be tied to premises where you are no longer entitled to operate the franchise. Clear agreements about premises are therefore an essential part of a careful start as a franchisee. Here is how to assess the relationship between the two contracts.

1. Understand the letting arrangement

First, establish who your landlord will be. Will you rent directly from a property owner, from the franchisor or from a separate property company? This determines whom you approach about maintenance, permission for alterations and arrangements for continuing the lease.

Under a subletting arrangement, the franchisor or another party leases the premises and then lets them to you. In that case, ask to see the relevant provisions of the head lease. Check whether subletting is permitted and what happens if the head lease ends. Your sublease alone does not give you a complete picture of your position.

Before making your decision, obtain:

• the draft lease, general terms and any addenda;
• a breakdown of rent, service charges, index-linked increases and security requirements;
• the provisions on permitted use, alterations and the condition in which the premises must be handed back;
• for a sublease: information about the head lease and consent to subletting;
• for a takeover: arrangements for transferring the existing lease.

Do not assume that buying an existing outlet automatically makes you the tenant. Transferring a contract generally requires the other party’s cooperation. For certain types of business premises, Dutch law also provides a court procedure through which a new tenant can take the existing tenant’s place, subject to conditions.

2. Compare both contract lengths and termination rules

Review the franchise agreement and lease side by side. For each agreement, note the start date, duration, renewal arrangements, notice period and grounds for termination. Also check when payment obligations begin: when you receive the keys, after the fit-out or only when you open?

Matching end dates are not enough. A franchise agreement might not be renewed, for example, while the lease continues unless notice is given in time. Conversely, you may still hold franchise rights while your ability to remain at the premises is uncertain.

Dutch tenancy law distinguishes between different types of business premises. Shops and hospitality premises often fall under Article 7:290 of the Dutch Civil Code, which has its own rules on lease terms and security of tenure. Other business premises, including many offices, may fall under Article 7:230a, which provides different protection against eviction. Both the actual use and the agreed use matter when determining which category applies.

Ask a lawyer specialising in Dutch tenancy law to assess whether a clause linking the lease to the franchise will actually be effective. Wording such as ‘the lease ends when the franchise ends’ does not automatically override statutory tenant protection. Certain clauses that depart from the statutory rules for Article 7:290 premises require court approval.

Practical check: work through three scenarios: the franchise ends, the lease ends and the opening is delayed. For each one, write down which payments continue and what options you have to resolve the situation.

3. Check that you can operate the franchise from the premises

The franchisor’s approval of the location does not replace permission from the landlord or the relevant authorities. Check whether the intended use complies with the local environment plan, which sets out land-use rules, and which permits are required. Depending on your activities, these may relate to alterations, hospitality operations, external signage or an outdoor seating area.

Also read the permitted-use clause in the lease. Premises restricted to a narrowly defined activity may offer little flexibility if your product range or services change. Ask who is responsible for obtaining the necessary permissions and what happens if they are not granted.

Agree how premises-related costs will be allocated. Who pays for changes to ventilation, electrical systems, fire safety measures and accessibility? Who maintains the building systems? And must you restore the premises to their original condition when you leave, even if the franchise required the alterations?

For an existing outlet, ask for permits, maintenance reports and details of previous agreements with the landlord. Do not assume that permits can be transferred without checking. Have important commitments confirmed in writing by the party responsible for fulfilling them.

4. Use the Dutch Franchise Act in your premises due diligence

The Netherlands has specific franchise legislation: the Dutch Franchise Act, incorporated into Book 7 of the Dutch Civil Code, Articles 7:911 to 7:922. These rules apply alongside tenancy law; they do not replace it.

Article 7:913 requires the franchisor to provide advance information about matters including the agreement, financial obligations and relevant investments. The franchisor must also disclose other information that it knows, or should reasonably suspect, is important to your decision. Known uncertainty about the availability of the premises may be relevant here.

You also have a duty to investigate, set out in Article 7:915. Ask targeted questions about missing lease documents, conflicting contract terms and unclear costs. Keep the answers with your purchase documentation.

Before signing, have an adviser assess which conditions are needed concerning finance, permits, landlord consent and the availability of the premises. Also record what happens to any money paid if a necessary condition is not met. Do not sign a separate lease ahead of the franchise agreement without having the legal relationship between them reviewed.

Practical conclusion: only buy once you know that you are entitled to use the premises, how long that right lasts and which obligations remain if either the lease or the franchise ends. Have both contracts reviewed together as an interconnected set of documents.