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Don't rush into your franchise lease without checking the details

Posted by Andrew Grima on 15 Jun 2018

Originally published via Inside Franchise Business.

Various issues can be overlooked in the rush to have a document signed and finalised, and because of a landlord's pressure to have a standard document for a complex or shopping centre. Such omissions may have an adverse impact on the retailer tenant.

Bearing this in mind, it's very important to consider the following issues so that as a tenant, your particular business model will work.

The lease and moving stock

Is your business the type that needs to receive stock (both large and small shipments) throughout the day?

If you don't have access to a loading dock direct to your premises, you may need to receive deliveries via the common areas of the centre or complex itself. If that's the case, consider requesting the following from your landlord:

The ability to have access to the building/premises for a period of time before and after trading hours to receive stock deliveries. The landlord may wish to charge you for use of building services outside of trading hours (security, use of air conditioning and electricity, etc) so be prepared to negotiate.

If you have certain items or products that need to be received during business hours, what do you do if your lease states that you must not interfere with common areas? Negotiate the ability to receive delivery of stock during business hours in your lease. There may be issues over the size of deliveries that can be brought through during trading hours and you may need to concede that you are not to unreasonably interfere with the quiet enjoyment of other tenants or customers within the centre. You also need to consider indemnities for damage or injury caused during deliveries.

The lease and after hours trade

Sometimes a tenant who occupies a retail shopping centre offers a product reliant on after hours' trade, such as a food retailer more akin to a restaurant than a kiosk, or a medical centre located within a retail shopping centre. In such circumstances you need to consider whether you should be liable for after hours' costs which the landlord may impose upon you for air conditioning, electricity, security, etc.

Initially, what you need to make sure is that you do have the right to occupy and trade outside normal core trading hours (retail leases will have contain a clause stating that tenants can only trade within core trading hours).

Secondly, find out what extra costs the landlord will charge you for trading outside these hours and consider if these will be higher than what your normal outgoings proportion will be. Also consider what access your customers or clients may have to sufficient lighting and parking.

The lease and disturbance

Leases usually have a clause which states that the tenant must not interfere with the use and enjoyment of adjoining premises. This may become an issue, if for example, your use creates loud noise, such as a 24-hour gym. If you're proposing to set up a business in a shopping centre or in a precinct where adjoining tenants may complain about noise, you need to negotiate out of liability for any disturbances emanating from your premises to adjoining tenants because of music or in carrying out your permitted use.

The lease and a liquor licence

Sometimes tenants need to sell liquor as part of their use but your usual standard shopping centre lease may not give you the ability to do this or cover off responsibilities for obtaining a liquor licence. Therefore, make sure that your lease gives you the ability to sell liquor, and governs responsibilities for obtaining and maintaining the liquor licence, including what happens to the liquor licence when the lease ends.

The lease and signage

Leases usually allow a tenant to install signage on the premises with the consent of the landlord and relevant authorities which will not be unreasonably withheld.

If you have specific signage requirements, for example, wishing to advertise your branding in common areas such escalator walls or signage pods within car parks, then you need to ensure that your lease specifically caters for these requirements. Otherwise, the usual standard leasing clause may not allow you to install signage in these additional areas.

Protecting your brand

Leases will usually allow for landlords to install 'For Let' or 'For Sale' signs on premises. A 'For Sale' sign may be required at any time during your tenancy while a 'For Let' sign is usually used within the last three to six months of your Lease (particularly if an option is not exercised or you don't renew). If you object to such signage within the premises because of potential damage to your branding, consider negotiating with the landlord for the lease to state that there is to be no such signage. Landlords may not agree to this amendment or may agree to a limited concession such as a 'For Sale' sign only.

Will your lease require you to redecorate?

Leases usually have a standard clause which states the tenant must redecorate their premises at the end of the lease. This can be an issue if you're occupying premises over a long period or where there are a series of terms through options to renew.

It can also be problematic if you're a particular franchise or retail operation with a standard fit-out aligned with your own regime and timetable for redecoration and upgrade. You run the risk of spending money at a certain point of time, only to have a landlord requiring you to carry out a subsequent upgrade or refurbishment which is either inconsistent with your own program or unnecessary.

Look at your refurbishment clauses carefully so you're not trapped by this. You may also consider deleting the refurbishment requirement altogether, provided that you maintain the premises in a professional standard and consistent with your corporate image.

The lease and insurance

Depending on your size and scale, you may have a national or global policy. However, your lease will usually require you to provide insurance in accordance with the landlord's requirements - including an insurer approved by the landlord and the insurance to be in the joint name of the landlord or such other persons as the landlord requires - check with your broker or insurer to make sure you are able to do this.

Are you able to instead note the interest of the landlord? Consider carefully what your insurance will cover - for instance, will it cover plate glass or do you self-insure? Are you able to provide a copy of the insurer's policy or only a Certificate of Currency of insurance? These questions are very important for you to consider and you must forward a copy of the insurance provisions to your broker or insurance company for their review to ensure you will not breach your lease, and to ascertain if any special conditions are required.

And the moral to the story is...?

The upshot to all of this is that you cannot, in an attempt to get a leasing deal over the line, accept standard leases from a landlord if they don't cater for the specific nuances of your business model.

If you would like to speak with a lawyer in our Commercial Property team regarding your retail lease, or you simply have a query regarding any of the above information, please don't hesitate to get in touch with:

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