The realities of retail tenancy, according to Mason Sier Turnbull
Even a big name franchisor has its hands tied, to some degree, about where it will be allowed to locate a franchised business because centres are typically divided into precincts. However, if the franchisor has a number of leases in a variety of shopping centres that have the same landlord, it and its franchisees are often in a better bargaining position when it comes to leave negotiations. In fact, many franchisors have been able to negotiate standard national terms with their shopping centre landlords.
At some point, either the franchisor or the franchisee will be required to sign a lease to obtain the right to occupy the premises. In franchising, the starting point for negotiating a lease is to ask 'who is to be the tenant?' The decision as to who will hold the lease is usually made by the franchisor. In franchising, the most common property holding options are:
- The franchisor holds the lease and grants the franchisee a licence to use or occupy the premises
- The franchisor holds the lease and enters into a sublease with the franchisee; or
- The franchisee holds the lease
If the franchisor is to hold the lease but the franchisee is to occupy the premises, either under a licence (contained in the franchise agreement) or in a separate licence agreement or a sublease, the landlord's consent to such occupancy will be required.
Most leases contain provisions requiring the landlord's consent before a sublease or licence is granted to a third party. In most cases, the lease will set out a process for obtaining such consent. This usually requires the sub-tenant or licensee to provide financial information and references about its financial and business experience.
In the franchise context, and to avoid the need to go through such processes, the franchisor should try to negotiate a clause that allows it to grant a sublease or licence to its approved franchisee. Advice may be sought from a Mason Sier Turnbull . 09.09.2007
FCA Member
Contact Mason Sier Turnbull
315 Ferntree Gully Road
Mount Waverley
VIC 3149
Tel: +613 8540 0287
Fax: +613 8540 0202
