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This is the Book Your Landlord Doesn’t Want Franchise Tenants to Read
By Dale Willerton and Jeff Grandfield – The Lease Coach
Published by Wiley & Sons, Inc., our new book, Negotiating Commercial Leases and Renewals For Dummies is written in a jargon-free manner that reveals to tenants insider secrets to understand the how-to’s of leasing commercial space and offers powerful strategies to use during the lease renewal negotiations.
Twenty years in the making and filled with anecdotal industry experience, Negotiating Commercial Leases and Renewals For Dummies will level the playing field for tenants who will save thousands of dollars over the life of their commercial lease by knowing how to negotiate with landlords and their agents. Offering tips to even the savviest business owners and tenants, the book will teach you how to use professional negotiating strategies, deal with landlords and agents, negotiate the lowest rental rate, get your deposit back, negotiate free rent, find the best location for your business and use lease assignment tips when buying or selling a franchise business.
We are finding that both franchisees and franchisors are embracing our new book. One reader, Kelly Dooling, President of DAK Restaurants Inc. (operating a Dakota’s Restaurant franchise), Lancaster, CA has told us, “I wish I had the book prior to signing my first lease. I am the textbook example of doing everything wrong in a lease. There are no other resources out there like this.”
Speaking at industry trade shows and healthcare conferences, The Lease Coach has helped tens of thousands of business owners and tenants with one-on-one coaching and consulting with new leases and existing renewal negotiations, site selection, lease document reviews, and more. The Lease Coach has successfully completed more than 1,200 tenant consulting projects, conducted hundreds of seminars, workshops and webinars, as well having provided real estate training to franchisors and franchisees across North America.
Considering The Lease Coach’s strong belief in and support of franchising concepts, we have devoted many pages in our new book to the subject of franchising. With the proper concept and partnership, both a franchisor and a franchisee can profit. Franchisees can help grow a franchise concept while franchisors provide a strong product/service, marketing support and training. As The Lease Coach, one area we have observed some franchisors falling short on, however, is real estate help (specifically in regard to site selection and commercial lease negotiating).
Please do not read that the wrong way! By no means are we condemning franchisors since many refer their franchisees to The Lease Coach for help. The fact is that franchisors may only offer franchisees limited help due to a lack of time, money, resources and experienced team members.
When it comes to offering real estate help, there are, essentially, three main ways that a franchisor can support a new franchisee. These are summarized below:
The franchisor will conduct site selection, secure and lease the location and then sublease the unit to the franchisee. With this arrangement, the franchisee is obligated to accept the chosen location; however, he/she does not accept final responsibility for the lease. The franchisor, having signed the “head lease” for the location, will ultimately be liable too. Should the franchisee struggle or pull out entirely, the franchisor will often try to resell the business to a new franchisee.
The franchisor or its area manager/developer will conduct site selection; however, will leave the lease negotiations to the franchisee. Typically, franchisees (and even many area managers) have little or no experience with such matters – they may be lucky to negotiate a commercial lease once or twice in their lives while savvy agents/leasing representatives/real estate agents do this every day for a living. This can be comparable to a complete novice facing a master in a game of chess. The franchisee may well enter into the process unprepared and neither asks the right questions or negotiates effectively. As a result, that franchisee can blindly agree to an inappropriate lease term, accept too much commercial space for his/her actual needs and/or miss out on receiving valuable tenant inducements (including tenant allowances, build-out assistance and/or free rent).
The franchisor will delegate the leasing process to the franchisee to find and lease his/her own location, often referring him/her to a broker. This is, typically, the worst scenario for the franchisee. As above, a franchisee may be inexperienced in such matters and not know exactly what to look for and fall short or even be manipulated by landlords and their commission-driven real estate agents.
Therefore, before signing on the dotted line, franchisees need to understand exactly how much help the franchisor will provide. You can learn what you need to know by asking the following questions:
Does the franchisor have an in-house real estate department or person working on salary or receiving a commission from the landlord?
Does the franchisor have a real estate department/person who contacts brokers to show properties? Despite what many franchise tenants believe, brokers work for landlords and earn healthy commission checks for signed lease deals. Therefore, that broker may be trying harder to serve the landlord than working in a franchise tenant’s best interest.
Does the franchisor have a so-called “Area Developer Manager” who matches franchisees with brokers to conduct site selection? As above, this still leaves the franchisee paired with a broker.
Does the franchisor leave the entire matter (of looking for available space and negotiating the commercial lease) to the franchisee?
To further illustrate these points, allow us to share these real-life stories with you.
In one instance, we were speaking to a franchisor about several matters and took the opportunity to ask, “How do you find locations for your franchisees? Do you have an in-house real estate department dedicated to this task? Do you phone brokers to work with your franchisees? Can you help a franchisee wishing to open in a distant city, where you are not located?” This franchisor answered, “No, we don’t have the time, manpower or money to travel to each city that we sell a franchise in.”
Also, a franchisor with 300 locations contacted The Lease Coach. In our ensuing discussion, we learned that this franchisor did not have any dedicated real estate department. While the franchise sales reps tried to help new franchisees, they simply did not have the real estate experience necessary to do so. Realizing this void, the franchisor was advertising for a real estate person; however, the chosen applicant had only residential real estate experience rather than commercial property and/or franchise-related experience.
As you can see, when it comes to buying into a franchise system, it’s a case of “buyer beware.” While your selected franchisor can – and will – provide name recognition, a proven track record, full-scale training and so on, you may receive only limited assistance (at best) with your real estate needs. By looking both ways before crossing the street and asking the right questions, you can better protect your own financial investment.
For a free copy of our CD, Leasing Do’s & Don’ts for Franchise Tenants, please e-mail me at 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.