Head lease and sublease from the franchisor

BDC says that knowing who owns the lease on a franchise location is crucial, and that a franchisee needs to understand the lease terms and the contract with the franchisor. If the franchisor is the tenant under the lease, the franchisee’s right to the premises depends on the franchisor’s own lease as well as on the sublease. For the consent questions that follow, see whether the landlord must approve as well as the franchisor.

What the rules say

Ontario’s Commercial Tenancies Act, s. 23, treats a covenant against assigning, underletting or parting with possession without licence or consent as subject to a proviso that consent is not to be unreasonably withheld, unless the lease contains an express provision to the contrary. Where the landlord refuses or neglects to consent, a judge can decide, on application, whether consent was unreasonably withheld. This entry covers Ontario only; check the rules in the province where the business is. In Ontario, O. Reg. 581/00, s. 6, also requires the disclosure document to describe any restrictions or requirements in the franchise agreement on obligations to purchase or lease from the franchisor, its associate or approved suppliers.

What to check or ask

• Who the tenant named in the lease for the premises is
• Whether the sublease ends if the franchise agreement ends, or the reverse
• Whether the landlord must consent as well as the franchisor
• What happens to the site if the head lease is not renewed