Buying a franchise: align your lease and franchise agreement

A suitable location can make a franchise attractive, but the premises come with obligations of their own. When joining a franchise network, you will often sign both a franchise agreement and a lease. These contracts do not automatically end at the same time. Before signing, check whether you can continue using the premises for as long as you need them, and what you will still have to pay if the franchise relationship ends.

1. Map out the leasing arrangements

Start by establishing who your landlord will be. Will you rent directly from an independent property owner, from the franchisor or through a separate property company? If you are taking a sublease, the head lease also matters: your access to the premises may depend on agreements to which you are not a party.

Ask for more than the rental figure: request the full draft lease, including its general terms and annexes. Check:

• Who has the right to let the premises to you.
• Whether your intended use is permitted under the lease.
• Whether alterations, external signage or changes to the layout require consent.
• Which obligations under any head lease will be passed on to you.
• What happens if the head lease ends or the franchisor fails to meet its obligations as a tenant.

If you are taking a sublease, ask for an explanation of the protection you actually have. An assurance that you can “simply stay put” is not enough if the property owner is not bound by it. If necessary, ask for a written agreement directly with the owner.

2. Put both contracts on the same timeline

For the lease and franchise agreement separately, note the start date, duration, notice period and conditions for termination. Include the date on which rent becomes payable, which may be before your outlet opens.

Then work through three scenarios: the outlet opens later than planned, the franchise ends on its scheduled expiry date, and the franchise ends early. Ask the same questions for each scenario: can you still use the premises, must you keep paying, and could you continue operating a different business there?

Matching expiry dates do not mean matching termination arrangements. One contract may renew automatically while the other expires. Different notice periods may also apply. Draw up a schedule of deadlines for taking action, not just expiry dates.

Pay particular attention to clauses linking the contracts. A clause might, for example, state that termination of the franchise provides grounds for terminating the lease, or that a breach of one contract has consequences under the other. Have a legal adviser assess whether that link is legally effective and what risks it creates for you. Never rely solely on the heading of such a clause.

3. Understand the protection offered by Dutch franchise and tenancy law

The Netherlands has a Franchise Act (Wet franchise), incorporated into Articles 7:911 to 7:922 of the Dutch Civil Code. Before the contract is signed, the franchisor must provide, among other things, the draft franchise agreement and its annexes, along with information about the required investments and financial contributions. Relevant obligations relating to the premises should therefore form part of your assessment of the overall offer.

Article 7:914 of the Dutch Civil Code requires a period of at least four weeks between the provision of the legally required information and the signing of the franchise agreement. During that period, the franchisor must not enter into agreements that are inseparably linked to it either. A lease with the franchisor may fall into this category. Seek legal advice on this before signing separately for the premises.

Dutch tenancy law also applies. Many shops and hospitality businesses fall within the protected category of business premises governed by Article 7:290 onwards of the Dutch Civil Code. For other business premises, the protection against eviction under Article 7:230a may be relevant. The applicable regime depends on the specific circumstances, not simply on the label the parties give the contract.

The Franchise Act does not automatically bring your lease to an end when your franchise relationship ends. Conversely, an ongoing franchise agreement does not automatically entitle you to continue using the premises. Have both agreements reviewed together by a legal adviser who also understands the applicable Dutch tenancy law.

4. Budget for leaving and agree solutions in advance

As well as the monthly rent, calculate the potential costs of leaving. These may include outstanding rent commitments, service charges, removal of franchise branding and reinstatement following alterations. Check who will own any fixtures and fittings you install, and the condition in which you must return the premises.

Then discuss specific solutions to any gaps between the contracts. These might include a negotiated right to terminate, consent to a replacement tenant or arrangements for continued use. You may need the cooperation of both the landlord and the franchisor; these options are not automatically available to you.

Practical conclusion: only sign once you understand, for opening, scheduled expiry and an early exit, who may use the premises, which payments will continue and which written agreements limit your risk.