An occupation licence is a common document in franchising. It’s usually used when a franchisor or its associate holds the lease for the premises. Instead of assigning the lease to the franchisee, the franchisor grants the franchisee a right to occupy the premises through this licence.
Occupation licences are closely tied to the franchise agreement. They allow franchisors to keep control of the lease while giving franchisees the ability to run their business from the premises. If you’re a franchisee or a franchisor, it’s important to understand how these licences work. A franchise lawyer can help you navigate the complexities.
What’s Typically Included?
An occupation licence will include terms that set out the rights and responsibilities of both parties. Here are the common inclusions:
Requirement for a Personal Guarantee
Franchisors often require franchisees to provide a personal guarantee under the occupation licence. This means the franchisee agrees to be personally liable for obligations under the licence, such as paying rent or fixing damages. It’s a way for franchisors to protect themselves financially.
Obligation to Comply with the Lease
Occupation licences usually require the franchisee to comply with the terms of the lease in full. Even though the franchisee isn’t a party to the lease, they must follow its rules. This might include maintaining the premises, paying for repairs, or complying with trading hours.
Right to Terminate if the Franchise Agreement Ends
A critical clause in an occupation licence is the franchisor’s right to terminate the licence if the franchise agreement ends. This ensures that if a franchisee loses the right to run the business, they also lose the right to occupy the premises.
It’s always a good idea to have a franchise lawyer review your occupation licence to ensure you understand your rights and obligations.
Bank Guarantee
Almost all retail and commercial leases require some form of security. Most commonly, this is a bank guarantee for between three and five months’ rent.
Who provides the bank guarantee depends on the terms of the lease. Often, it’s the franchisor who provides it. However, large franchisors sometimes negotiate special conditions allowing the franchisee to provide the bank guarantee instead. This shifts the financial responsibility to the franchisee while still meeting the lease’s security requirements.
If you’re negotiating an occupation licence, check who’s responsible for the bank guarantee. A franchise lawyer can help ensure the terms are fair.
Is Landlord Consent Required to Issue a Licence to Occupy?
In most leases, the landlord’s consent is required before granting occupancy rights to a third party, including a franchisee.
However, many franchisors negotiate with landlords to remove or weaken this requirement. For example, some leases include special clauses stating that landlord consent isn’t needed if the franchisee is the one occupying the premises.
If you’re a franchisee, ask whether the landlord’s consent has been obtained. If you’re a franchisor, ensure this issue is addressed in your lease negotiations to avoid future complications.
Insurance
Just like security requirements, the responsibility for obtaining insurance under the lease depends on its terms.
Franchisors often negotiate special conditions that shift the obligation to the franchisee. This means the franchisee must take out and maintain insurance that complies with the lease, such as public liability and property damage insurance.
If you’re a franchisee, make sure you know what insurance you’re required to hold. Franchisors should clearly outline these requirements in the occupation licence. It’s also important to note that a breach of the occupation licence is often deemed a breach of the franchise agreement. This makes it critical to comply with both documents.
Why It’s Important
An occupation licence is more than just a right to occupy premises. It ties into the franchise agreement, the lease, and even other obligations like providing security or insurance. Misunderstanding your rights or responsibilities can lead to breaches and disputes.
For franchisors, an occupation licence provides control and flexibility. For franchisees, it provides access to premises but also comes with significant obligations.
A franchise lawyer can help ensure these licences are drafted and negotiated properly. They can also explain the risks and help protect your interests, whether you’re a franchisor or a franchisee.
Final Thoughts
Occupation licences are a common tool in franchising. They let franchisors retain control while granting franchisees the right to run their businesses from leased premises. However, they come with obligations like providing guarantees, complying with leases, and obtaining insurance.
If you’re entering into an occupation licence, seek advice from a franchise lawyer. It’s the best way to understand your rights and responsibilities and avoid surprises down the track.