Buying a US Franchise: Align Your Lease and Franchise Terms

A suitable premises does not necessarily come with a suitable lease. When buying a US franchise, you may sign separate agreements with the franchisor and landlord, each imposing obligations that the other does not recognise. Within the franchising community, checking those documents together is an important safeguard against paying for premises you can no longer use as intended.

1. Put both agreements on one timeline

Start with a simple schedule showing the proposed lease and franchise agreement side by side. Record when each agreement becomes binding, when payments begin, how long it lasts and which events trigger important deadlines.

Do not assume that two agreements described as having the same duration will finish together. The lease might begin when you receive possession, while the franchise term might start on signing or opening. Construction delays could widen that gap.

Ask your lawyer to identify:

• The lease commencement date and rent commencement date.
• The event that starts the franchise term.
• Any deadline for opening the business.
• The expiry dates of both agreements.
• Notice deadlines and conditions for extending either arrangement.

Then test two uncomfortable possibilities: the franchise ends while the lease continues, or the lease ends while the franchise agreement still requires you to operate.

An extension option is not necessarily a solution. It may depend on notice being served within a particular window, the absence of defaults or agreement on new commercial terms. Your accountant should model any unavoidable rent exposure rather than assuming both contracts will end neatly together.

2. Check whether the lease allows the required business

A lease's permitted-use clause determines what the landlord allows at the premises. The franchise agreement and operating requirements determine what the franchisor expects. These permissions and obligations need to be compatible.

For example, a narrowly drafted use clause could prevent an additional service that the franchise format requires. Building rules might restrict deliveries, signage, customer access or alterations. A landlord's exclusive-use promise to another tenant could also affect what your outlet may offer.

Ask for the full proposed lease, including building rules, schedules and relevant amendments. Compare it with the franchise documents rather than relying on a property advertisement or an assurance that similar businesses already trade there.

Check who must approve alterations and who pays to carry them out. If the franchisor requires a particular fit-out, landlord consent should not be treated as automatic. Equally, franchisor approval of the location does not mean the lease protects your interests.

Where the documents conflict, seek a written amendment from the relevant party before committing. A franchisor cannot ordinarily change your landlord's contractual obligations simply by giving you permission.

3. Trace what happens if the business changes hands or stops

Read the transfer provisions together. A future purchaser may need approval from both the franchisor and landlord, under different criteria and timetables. Approval from one does not replace approval from the other.

Ask whether the lease permits assignment, whether the franchisor has any rights to take over the premises, and what documents a replacement tenant must sign. Establish whether you remain liable after an assignment unless the landlord expressly releases you.

Also check for provisions linking a default under one agreement to consequences under the other. Do not assume such a link exists, but do not overlook it if it does.

Have your lawyer explain the practical sequence if the franchise agreement terminates: when trading must stop, when branding must be removed, whether access remains available and what the lease requires you to remove or reinstate. There may be competing requirements about signs, fixtures and equipment.

Build a short responsibility list identifying who must act, whose consent is needed and which costs could remain yours. This makes the financial consequences easier to assess than reading each document separately.

4. Coordinate disclosure, advice and signing

The Federal Trade Commission's Franchise Rule generally requires the franchisor to provide its Franchise Disclosure Document at least 14 calendar days before you sign a binding agreement with, or pay money to, the franchisor or its affiliate in connection with the proposed franchise sale. The franchise agreement should be attached to the FDD.

That federal waiting period does not automatically protect you from commitments to an independent landlord. Signing a lease too early can leave you exposed while you are still evaluating the franchise.

State franchise disclosure, registration and relationship laws may also apply. Ask a US franchise lawyer to identify the applicable requirements and coordinate with a lawyer experienced in local commercial leasing. Neither disclosure nor registration guarantees that the two contracts work together.

Before signing, have your advisers review the final versions, not just earlier drafts. Ask whether negotiated conditions can prevent one commitment becoming unconditional before the other is ready.

Practical takeaway: Treat the lease and franchise agreement as one commercial decision, even though they are separate contracts. Resolve incompatible dates, permissions and continuing liabilities before you commit to either.