Buying a Franchise in South Africa: Check the Lease

A suitable shop or office can still be a risky commitment if its lease does not match your franchise agreement. Before joining South Africa’s franchising community, check whether you can legally occupy, fit out and operate from the premises for the period your business plan assumes. Treat the lease and franchise agreement as one connected decision, even when different parties provide them.

1. Establish who controls the premises

Start by identifying the proposed tenant. Will your business lease directly from the landlord, sublet from the franchisor, or occupy under another arrangement? Each structure creates different dependencies.

With a direct lease, you owe obligations to the landlord separately from those owed to the franchisor. Losing your franchise rights does not automatically end your rent liability. Under a sublease, your occupation may depend on the franchisor’s head lease remaining in force.

Request the documents relevant to your occupation, including any head lease provisions incorporated into a sublease. Ask an independent attorney to establish:

• Who signs the lease and who must provide security or personal suretyship.
• Whether the landlord has approved the proposed franchise use and any subletting.
• Whether the franchisor has rights to take over the premises if your franchise ends.
• What happens to your occupation if the head lease expires or is terminated.

Franchisor approval of a site is not a substitute for legal permission to trade there. Check the permitted use, applicable zoning and any business-specific approvals with the landlord and relevant authorities.

2. Match the dates before committing

South Africa specifically regulates franchise agreements through the Consumer Protection Act 68 of 2008 (CPA) and its regulations, alongside common law. Section 7 requires franchise agreements to be in writing, signed by or on behalf of the franchisee, and expressed in plain and understandable language.

Regulation 2 prescribes information for franchise agreements, including terms concerning duration and renewal. Regulation 3 requires a franchisor to provide the prescribed disclosure document at least 14 days before the prospective franchisee signs the franchise agreement. Use that review period to examine the premises arrangements too; it is not a substitute for reviewing the lease separately.

Prepare a single timeline showing:

• Lease signature, premises handover and the start of rent.
• Fit-out access, expected approvals and the intended opening date.
• The franchise commencement date and expiry date.
• Notice deadlines and conditions for renewing both agreements.

A lease that starts charging rent before you can fit out or trade creates a funding gap. A lease that outlasts your franchise rights can leave you paying for premises from which you cannot operate the brand.

Ask your attorney whether commitments should be conditional on specified events, such as finance approval, franchise approval or necessary permissions. Any conditions need clear deadlines and consequences if they are not fulfilled. Do not assume a franchise-related cancellation right will also release you from a separately signed lease.

3. Calculate the full premises commitment

The advertised rent is only one part of the cost. Obtain a written breakdown of the lease’s charges and compare it with the franchisor’s site and fit-out requirements.

Depending on the agreement, your budget may need to cover operating charges, utilities, municipal cost recoveries, marketing levies, insurance, security, maintenance and VAT where applicable. Establish whether rent includes a turnover-based component and how turnover is defined.

Check who pays for electrical upgrades, ventilation, plumbing, signage and backup power installations. Confirm whether landlord consent is needed and whether the franchisor’s approved specifications are compatible with the building.

Separate once-off costs from recurring commitments. Then ask your accountant to test the effect of contractual rent increases, delayed opening and slower sales on available cash.

If the landlord offers a fit-out contribution or rent-free period, record its conditions. Check when the benefit starts, which charges remain payable and whether anything must be repaid after an early exit. A verbal incentive should not carry your funding plan.

4. Plan renewal, sale and exit together

Renewal of the franchise does not guarantee renewal of the lease, or vice versa. Compare notice periods, eligibility conditions, refurbishment obligations and the method for setting future rent. Avoid treating a discretionary renewal as guaranteed trading time.

Before buying, also examine how you could sell. A buyer may need both franchisor approval and landlord consent to take over the lease. Ask what fees, financial tests and replacement security may apply, and whether you would be released from any personal suretyship.

Finally, identify your end-of-lease obligations. Removing branding, reinstating alterations and repairing the premises can cost money even after trading stops. Establish who owns installed equipment and improvements, and whether they may be removed.

Practical takeaway: Before signing either agreement, have an independent attorney review both together and produce a shared schedule of dates, costs, permissions and exit obligations. Resolve mismatches in writing before committing.