Leasing 101 for Franchisee Tenants

Dale Willerton and Jeff Grandfield

Date

Aug 13, 2014

Starting the commercial leasing process in the right direction is critical if you want to achieve the best results. If you take the wrong path or veer off in the wrong direction, you may not achieve your goals or your business’s full potential.  Even with a proven franchise system, success is never guaranteed. Yes, franchisors can provide you with name brand recognition, inventory, marketing support, training, etc.; however, they often fall short with regards to real estate help for their new franchisees.

Landlords love to lease space to national chains and franchisee tenants who have bought into large, established franchise concepts and will do their utmost to attract you to their property. Therefore, as a franchisee tenant, you have an advantage as landlords recognize that franchise systems are proven, well thought out, and often stay in business much longer and achieve much higher rates of success that many independent concepts. Still, it’s important for you to look before you leap (or lease).  When you take your time (and get professional help), you are more likely to sign for a more appropriate lease term, receive valuable tenant inducements from the landlord and pay less monthly rent. Here are just a few tips for you to remember prior to signing on the dotted line:

  1. Negotiate to Win. All too frequently, franchisee tenants enter into lease negotiations unprepared and don’t even try winning the negotiations. Often, franchisees mistakenly set their sights on just striking a fair deal or negotiating “not to lose” (their shirt). This usually plays right into the leasing agent’s hand who is most certainly negotiating to win the best deal for his or her boss – the landlord. If you’re not negotiating to win … you won’t. Negotiate assertively.
  2. Allow Sufficient Time. For a new location lease agreement, get started a minimum of six months in advance to avoid unexpected situations and delays. Time will be your ally or your enemy, depending on how you use it and delays on the landlord’s end or with building permits and construction are commonplace. Unrealistic opening date expectations often come back to haunt tenants who did not allow sufficient time for all the pieces of the leasing process puzzle to come together.
  3. Broker … Friend or Foe ?  It is not uncommon for a franchisee to believe that the real estate agent or broker is working for them. However, the listing agent`s commission is being paid by the landlord, and even an outside agent may be sharing in that commission. Remember, the higher the rent, often the higher the agent`s commission. Whether a landlord-paid agent can represent two masters you will have to decide for yourself. Brokers and Agents do a great job but who is paying them to do it? Even the most altruistic agent can`t serve two masters equally.
  4. Go Slow For a Better Deal. Franchisees often rush a lease deal and leave valuable incentives or inducements on the table. If you have the time to work with, we recommend that you take it. Often, The Lease Coach gets tenants more benefits by not rushing the process. If the landlord or agent is eager to close the deal, you can use stalling tactics to better your position (e.g. financing or partner approval). Franchisee tenants who invariably have regrets will usually tell you the whole process happened so quickly that hardly realized what they had agreed to.
  5. Select the Best Lease Length. While a five-year lease term is still standard (or even 10 years for some franchise systems), it is not necessarily the best term for your business. The agent – motivated by a greater commission – will want you to sign the longest term possible, but the landlord may be flexible. Take the term that is best for your business. The lease term should usually run parallel in length to the franchise agreement length.
  6. Buying an Existing Franchise? It has been our experience that the average person buying a franchise that is already open does not fully consider the lease agreement that he is taking on. For the purchaser, this is a very good opportunity to improve the situation by trying to negotiate better lease terms. All Offers to Purchase for a franchise should be subject to final lease approval. Ask a Lease Consultant to review your lease document for you and negotiate terms on your behalf. You can also speak with the landlord about renewal options and the purchaser`s right to eventually resell the franchise at a future time.

For a copy of our free CD, Leasing Do’s & Don’ts for Commercial Tenants, please e-mail your request to DaleWillerton@TheLeaseCoach.com.

Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals For Dummies (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.

 

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