Skip to content

How Do Leasing Arrangements Work In A Franchise?

There are two basic ways that leasing arrangements are structured in a franchise agreement:

  1. you lease directly through a landlord; or
  2. the franchisor holds the lease and grants you a licence to use the premises.

Leasing directly through a landlord

If you choose to enter into a lease with the landlord of the premises, you need to be aware that you have separate obligations to your landlord and to the franchise. You will be solely responsible to negotiate the terms of the lease and satisfy your requirements under the lease, including paying rent.

One of the most important things to do is to make sure that the term of the franchise agreement and the lease agreement end at the same time.  You don’t want to find yourself in a position where you need to vacate the property and are in breach of your duties under the franchise agreement.

Licencing the premises from the franchisor

If a franchisor has an existing lease over a premises they will likely offer to give you a licence to use those premises.  It will be the franchisor that bears the risk should something go wrong so they may ask you to provide a personal or bank guarantee to insure themselves against damage or non-payment of rent. Be sure to direct any permission requests, complaints and queries to the franchisor and not to the landlord.

Alternatively, the franchisor might sub-lease the property to you.  In either event, you will have a clear legal obligation to pay rent to the franchisor.

Continue reading this article below the form
Loading form

What is the difference between a licence and a sub-lease?

Generally, a sub-lease provides you with greater rights and autonomy than a licence.  A licence allows you to use the premises for a specified purpose, whereas a sub-lease creates a relationship between you and the landlord and gives you the right to exclusively possess the premises.

Permitted use clauses

If you are leasing directly from the landlord you need to read the lease agreement to ensure that the intended purpose of your business fits within the permitted use provision.  You would be surprised at how many times people run into trouble by not reading their commercial lease thoroughly.

Fit Outs

It is also important to check the commercial lease agreement to make sure that you will be allowed to put up any relevant signage and make the changes you need in order to run your franchise business.

Before making any changes to the premises it is best to know the state that the lease agreement requires the premises to be in in when you vacate at the end of your lease period.  Spending a little bit of extra time thinking this through at the beginning of the lease may save you a lot of time and money at the end!

Options to Renew

Keep a close eye on the options for lease renewal clauses in the lease agreement.  Usually there is a procedure you have to follow, criteria you have to meet and a notice period during which time you have to give your intention to renew – if you do not comply with these criteria the landlord is within their rights to refuse your lease renewal request.

Re-negotiate

Remember that it is your choice whether or not to enter into a contract and you are allowed to say ‘no’ to an agreement that you aren’t happy with.  The franchisor and landlord are business people and they are prepared to work for your business!

What if I have problems with my franchise or lease agreement?

In most cases the franchisor or landlord will be more experienced at dealing with disputes and negotiating deals than you will be.  For these reasons it’s important to seek professional financial or legal advice to clarify your rights and obligations and assist you in your negotiations with your franchisor and / or landlord.

Register for our free webinars

ACCC Merger Reforms: Key Takeaways for Executives and Legal Counsel

Online
Understand how the ACCC’s merger reforms impact your legal strategy. Register for our free webinar.
Register Now

Ask an Employment Lawyer: Contracts, Performance and Navigating Dismissals

Online
Ask an employment lawyer your contract, performance and dismissal questions in our free webinar. Register today.
Register Now

Stop Chasing Unpaid Invoices: Payment Terms That Actually Work

Online
Stop chasing late payments with stronger terms and protections. Register for our free webinar.
Register Now

Managing Psychosocial Risks: Employer and Legal Counsel Responsibilities

Online
Protect your business by managing workplace psychosocial risks. Register for our free webinar.
Register Now
See more webinars >
Lachlan McKnight

Lachlan McKnight

CEO | View profile

Lachlan is the CEO of LegalVision. He co-founded LegalVision in 2012 with the goal of providing high quality, cost effective legal services at scale to both SMEs and large corporates.

Qualifications: Lachlan has an MBA from INSEAD and is admitted to the Supreme Court of England and Wales and the Supreme Court of New South Wales.

Read all articles by Lachlan

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

We’re an award-winning law firm

  • Award

    2025 Future of Legal Services Innovation Finalist - Legal Innovation Awards

  • Award

    2025 Employer of Choice - Australasian Lawyer

  • Award

    2024 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2024 Law Firm of the Year Finalist - Modern Law Private Client Awards

  • Award

    2022 Law Firm of the Year - Australasian Law Awards