Whose Risk Is It Anyway?

Historically, it had been the standard practice of franchisors to enter into commercial leases with landlords directly and then sublet the premises to their franchisees. Under this model, the franchisor maintained ultimate control over the premises as well as the direct relationship with the landlord and the landlord obtained the covenant of the franchisor and likely the franchisee, by way of tri-party or assumption agreement. However, with that ultimate control came ultimate liability, as franchisors were liable as tenants under the lease for the premises operated by their franchisees.

In efforts to limit a franchisor's lease liability, franchisors have moved to a "franchisee-first" model. In today's market it is much more common among Canadian-based, as well as foreign franchisors, to insist that franchisees enter into leases directly with landlords as the tenant. Under this model, franchisors maintain control over operations of the premises through the franchise