We recently spoke with Marianne Marchesi, Principal Lawyer from Legalite about the legalities around franchise leases. Marianne provides legal advice to both franchisors and franchisees, and has worked with brands such as Jenny Craig, Curves and Gloria Jeans.
The Landlord has said they will draw up the lease themself. Will this suffice or does it have to be drawn up by a lawyer?
It’s common for the lease to be prepared by the Landlord, however you should always ensure that the lease is reviewed by a lawyer.
Your lawyer will review the lease to make sure it does not contain any unfair or unlawful terms, that it reflects any prior agreement and to generally advise you on your key rights and obligations under the lease.
Sometimes, the lease will be in a widely used form, like the Law Institute of Victoria template lease, which can make this process a lot easier.
Do I have to be a personal guarantor on a franchise lease and what does this mean?
Landlords will usually require personal guarantees under the lease to make sure they have recourse if the tenant (which may be a company) does not meet its obligations, such as paying rent.
A personal guarantee means you are personally liable for ensuring the tenant meets all of its obligations under the lease. Whilst common, they naturally involve some risk so it’s important to get advice and review your asset protection strategies.
If you’re a franchisee, should the franchisor be provided with a lease to approve prior to you signing? What is the normal process?
Yes, if you are to hold the lease, then the franchisor will need to give their approval to the lease before you enter into it. The franchisor might also have some required terms that are to be incorporated into the lease, such as a right of re-entry in case of breach.
Sometimes, the franchisor will hold the lease and then grant you an occupancy licence. The occupancy licence will require you to comply with the terms of the lease as if you were the tenant, but ultimately it is the franchisor who is on the hook under the lease (and has security of tenure).
If a standard Law Institute lease is used should it still be reviewed by a lawyer?
As mentioned above, the standard Law Institute lease is widely used, and is also generally accepted to be fair and balanced in its treatment of the parties.
However, you should still have this lease reviewed, as it may contain some special conditions which vary the standard terms. Also, your lawyer will advise you on your rights and obligations under the lease and ensure it matches up with what was previously agreed (such as in a heads of agreement).
What is the difference between a lawyer reviewing my lease and a tenant representative? Do I need to use both?
A tenant representative will assist you with negotiating the commercial terms of the lease (for example, the rent), whereas a lawyer can advise you on the legal terms and implications (for example, whether there are any terms that are unlawful under the Retail Leases Act).
If your budget allows, it’s always a good idea to use both to ensure you are fully covered from both perspectives.