Premises for a franchise: what to check before signing a lease

Premises may appeal to the franchisor yet still be unsuitable for the business you intend to open. Before joining a franchise network, check that the property can accommodate your planned activity and that the lease fits with your franchise agreement. Signing first and resolving problems later could leave you paying for space you cannot use.

1. Distinguish commercial approval from technical feasibility

The franchisor’s approval of premises usually considers location, visibility, floor area and suitability for the concept. It does not replace an independent planning and technical assessment, nor does it guarantee that you can carry out the necessary work.

Ask the franchisor to provide its requirements in writing: layout, building services, electrical capacity, ventilation, accessibility, storage and any other essential features. Then commission a suitably qualified professional to check those requirements against the property and the applicable regulations.

Before paying a holding deposit, check:

• Planning compatibility: whether the proposed business activity is permitted at that location.
• Opening and building work procedures: whether licences, formal declarations of compliance (declaraciones responsables) or other authorisations are required, depending on the activity and municipality.
• Building conditions: escape routes, accessibility, fire protection, insulation and the capacity of building services.
• Private restrictions: the rules of the building’s owners’ association and any permissions needed to alter shared parts of the property.

A similar business having previously operated there does not mean that existing permits are sufficient or transferable. Nor does a formal declaration of compliance remove the obligation to meet technical requirements. Request copies of the available records and check what they cover with the local council and your technical adviser.

2. Make your commitment conditional on outstanding checks

If you do not yet have the franchisor’s written approval or the technical assessment, avoid an unconditional reservation agreement. Negotiate a document that specifies what needs to be verified, by when, and what happens to any money paid if the outcome is unfavourable.

Simply writing ‘subject to a licence’ is not enough. The clause should specify which authorisation or condition is necessary, who handles each application and what documentation proves that the requirement has been met. A lawyer can help you draw up a condition precedent or a right to terminate suited to your circumstances.

For example, you could negotiate for your commitment to depend on the feasibility of installing an extraction flue where this is essential to the business. You should also establish how the holding deposit will be refunded and which costs, if any, you will have to bear.

In Spain, Article 62 of Law 7/1996 on the Regulation of Retail Trade and Royal Decree 201/2010 govern aspects of franchising. Pre-contractual information must be supplied in writing at least twenty days before you sign a franchise agreement or preliminary franchise agreement, or make any payment to the franchisor. Do not mistake that period for automatic protection in relation to a reservation agreement or lease signed with an independent landlord.

3. Review the lease as a business contract

A lease of business premises generally falls within the category of leases for non-residential use under Law 29/1994 on Urban Leases. The terms agreed between the parties are particularly important; where those terms do not address an issue, Title III of that law applies, with the Civil Code providing supplementary rules.

Do not therefore assume that the protections associated with residential tenancies apply. Specifically review:

• Permitted use: this should cover the actual business activity rather than define it too narrowly.
• Alterations and signage: who authorises, carries out and pays for each item of work, and what must be removed at the end of the lease.
• Costs passed on to you: owners’ association charges, taxes, maintenance and repairs, with a clear allocation of responsibility.
• Deposits and security: the statutory security deposit for these leases is two months’ rent; additional security may also be agreed.
• Assignment and subletting: check whether the lease restricts these options, particularly if the franchisor will be involved in occupying the premises.

Record the condition of the premises at handover with photographs and an inventory. If an installation or repair is promised, include it in the contract, identifying who is responsible and the deadline, rather than relying on a conversation.

4. Align the premises and franchise timelines

Prepare a combined schedule covering key handover, permits, fit-out work, training and opening. Identify when each payment obligation begins and what happens if a stage is delayed.

Where possible, negotiate a rent-free period to fit out the premises. Clarify whether it covers rent alone or other charges too: receiving the keys does not mean you have premises ready to trade from.

Compare the length of the lease with the term of the franchise agreement as well. If the lease ends first, you could lose the location while remaining tied to the brand. If it lasts longer, you could still have rental obligations after you stop trading under the brand. Review the renewal and extension provisions in both documents rather than assuming they match.

Practical takeaway: do not sign the lease simply because the franchisor approves the location. Insist on documented technical feasibility, clear conditions for outstanding matters and a coordinated timetable agreed between the landlord, franchisor and prospective franchisee.