Reading time: 4 minutes

Franchised businesses come in all shapes and sizes. There are mobile franchises, exclusive territory franchises and franchises that operate in a non-exclusive area from a specified premises.

In the case where a franchise operates from a particular premises, the parties will need to enter into additional agreements on top of the franchise agreement to occupy the premises.

The Lease Documents

If a lease is required, the first threshold question that must be resolved is, who will hold the lease – the franchisee or the franchisor?

This issue is not a “one size fits all” answer. In fact, franchised businesses around Australia operate from a mixture of premises either leased directly by the franchisee or leased in the name of the franchisor. If the franchisor is named as Lessee, a further document known as a “Licence to Occupy” will also be required for the franchisor to confer the right to occupy the premises upon the franchisee. This document effectively places the franchisee in the shoes of the franchisor as if they were the tenant under the Lease.

Ultimately, it will be up to the discretion of the franchisor and how much control they wish to exercise over the franchisee. If the franchisor controls the Lease and the premises, it is easier to remove a franchisee for breach of the franchise agreement and/or lease and replace them with a new franchisee. The franchisor may also have better bargaining power and lease negotiation skills if it is a large franchise. Sometimes franchisors also like to ensure consistency across their portfolios, and by acting as the tenant under a Lease, they can ensure the Leases are consistent as to “permitted use” and franchisee clauses.

Importantly, the party who holds the lease will ultimately be conducting lease negotiations. If it is the franchisor, there is a risk that the franchisee may become marginalised or excluded from negotiations. This means they are forced to accept whatever the franchisor negotiates on their behalf.

To avoid this happening, we suggest that all franchisees become involved in this process and ask to review or draft documents for input to ensure that the lease terms are favourable to the franchisee, given that they will be paying the rent each month.

If possible, these documents should be reviewed at the time the franchise agreement is reviewed. Once a franchise agreement is signed, the franchisee may be forced to accept the terms of the lease. If all documents are reviewed together, the franchisee can make a clearer decision.

Personal Guarantees

Regardless of who is named as the tenant on the lease (the franchisee or the franchisor), the franchisee will inevitably be required to provide a personal guarantee for the obligations of the company. They must also provide a security deposit or bond for their obligations under the lease (and the Licence to Occupy where applicable).

Before a franchisee offers up a personal guarantee, legal and accounting advice should be obtained to ensure that they understand their exposure to any potential risks.

Who gets the rental incentive payment?

When negotiating commercial (or retail) leases, it is common for the landlord to provide a lease incentive to entice the tenant to lease the premises. This will usually be in the form of a cash payment to assist the tenant fit out the premises and may also involve a rent-free period.

The franchisor and franchisee must be clear as to who will be receiving this money and what it will be applied for. Any fitout incentive deed must be reviewed carefully. Importantly, sometimes the conditions of a fitout incentive deed state that if a tenant vacates the premises or the lease is assigned within a certain time period during the initial term, the rental incentive (or a part of it) must be paid back to the Landlord.


Franchise agreements and lease arrangements are closely intertwined, and expert legal advice should be sought before a franchisee enters into any of these agreements. Call one of our leasing and franchise lawyers today on 1300 544 755. You won’t regret it.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards