Commercial Lease Negotiating '101' for Franchisee Tenants
Commercial leasing and commercial lease negotiating for franchisee tenants can be both complicated and complex matters. By including a number of points in the process, you are far more likely to achieve success with your chosen commercial site.
Here, in no particular order, are a number of valuable tips taken from our book, Negotiating Commercial Leases & Renewals FOR DUMMIES.
There are approximately 3,000 franchise brands in North America, with food service being a dominate category and most of them lease space for their business. The main difference between a franchisee tenant and an independent tenant is name or brand recognition. If you can share that you are a franchisee of a famous and/or recognizable brand, the landlord or their real estate agent may show greater interest in your concept.
As a prospective franchisee, you are banking on a proven brand for your success but finding the perfect location for a franchise concept can still be quite challenging. One pizzeria franchisee told The Lease Coach that there was such fierce competition for good pizzeria sites that as the tenant, they didn’t negotiate the rental rate and simply agreed to whatever deal that the landlord wanted. This was not an isolated incident but in many marketplaces the franchise tenant can still get a great lease deal if they are experienced, knowledgeable, or have professional assistance.
If the franchise concept you’re buying into has a site criteria list, ask for it, and make sure that you use it or include it in the leasing process. A franchisor may stipulate that a good location is stipulated by certain factors such as resident age, population density, and/or income levels. For example, a high-end frozen yogurt concept may do better in a more affluent or touristy area.
A franchisor may have a lease addendum that they expect you to attach to the lease agreement before the landlord signs. This addendum may give the franchisor certain rights to take over your location, lease it for themselves, or lease it to another franchisee if you go broke. This will also state that the franchisor be notified if you’re behind in rent, for example, or in any form of default on the lease agreement.
Getting leasing help from your franchisor may be difficult or even impossible. We remember one franchisor with several hundred locations who called us to ask about site selection for their franchisees. We explained that there is no magic bullet to site selection – the process can best be done hands-on. The franchisor then replied to say that they did not have the money, time, or staff to personally go to each franchise city (despite charging a $25,000 franchise fee).
Alternatively, franchisors often prefer to turn their franchisees over to local real estate agents for help with site selection. Besides not having the proper resources available, a franchisor may not want the liability for placing their franchisees into a poor location or a bad lease deal. By hooking the franchisee up with a local agent, the franchisor can often successfully separate themselves from the process.
If you have a franchise brand behind you, you need to make sure that the landlord sees and recognizes this. A franchisor’s color brochures, website, and marketing materials can all help whet the landlord’s appetite for a particular tenancy. And if you play your cards well, this can often translate into a superior lease deal all around.
A final benefit of having a franchisor is that you have another set of eyes and ears to review various leasing opportunities. Note that your franchisor partner may not always agree on which location constitutes the best place for a business. If your franchisor doesn’t give their blessing to a location, you should have the right to rescind the offer to lease.