A franchising clause in a lease is crucial for businesses involving franchising. It outlines specific rights and obligations for the lessee, typically a franchisor, regarding the occupation of the premises by a franchisee. Let’s break down its components and importance.
When Are These Included?
Franchising clauses are included when a franchisor or its associate enters into a lease with the intent to grant occupation rights to a franchisee. This usually happens through a licence to occupy. Franchise lawyers often advise including these clauses to ensure the franchisor can sublet/ licence the premises to the franchisee legally. This is common in retail and hospitality sectors where franchising is prevalent.
What Do They Cover?
These clauses grant the lessee, usually the franchisor, the right to allow a franchisee to occupy the premises. The franchisee must adhere to the lease terms as if they are the named lessee. Additionally, these clauses often include notification provisions. This means the lessor must notify the lessee/franchisor of any default, such as failure to pay rent. Franchise lawyers recommend these provisions to ensure smooth communication and address issues promptly.
Who Is Legally Liable?
Often, the requirement to provide security such as a bank guarantee is ‘passed on’ to the Franchisee pursuant to the Franchising Clause. Otherwise, despite the franchising clause, the lessee/franchisor usually remains ultimately liable for the lease performance. This means if the franchisee defaults, the franchisor is still responsible for meeting the lease obligations. Franchise lawyers emphasize this point to ensure franchisors understand their ongoing liability despite subletting the premises.
When Are They Appropriate?
Franchising clauses are standard in leases entered into by franchisors. These clauses give franchisors more control over the premises. This is sometimes preferred by franchisors to manage their brand and operations effectively. Moreover, larger retail lessors often prefer dealing with franchisors over individual franchisees. Franchisors may also negotiate standard lease terms with larger lessors, making these clauses even more relevant. Franchise lawyers often facilitate these negotiations to protect their clients’ interests.
What Happens if the Lease Doesn’t Include One?
If a lease doesn’t include a franchising clause, the franchisee occupying the premises could breach the lease terms. Most leases prohibit subletting or allowing another party to occupy the premises without explicit permission. This breach carries significant risks, including eviction and financial ramifications. Franchise lawyers stress the importance of including franchising clauses to avoid these legal pitfalls and protect the franchisor’s and franchisee’s interests.
In summary, franchising clauses in leases are essential for franchisors who intend to grant occupation rights to franchisees. These clauses cover the right to sublet, notification provisions, and ensure the franchisor’s ultimate liability. They are appropriate in leases entered into by franchisors, providing control and standard terms. Without them, the risk of breaching lease terms is high. Consulting a franchise lawyer ensures these clauses are correctly drafted and included, safeguarding the interests of all parties involved.