Leasing your franchise premises
By Michael Johnson
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to help cover that cost with high rents. An experienced franchisor who has an expert property team at their disposal should be able to negotiate favourable terms for a franchise location. Where is the landlord physically located? A local landlord is often more accessible, thus making easier any dealings prior to and following signing the formal lease. Corporate landlords, investors and larger franchisors might only have representatives who act on their behalf and these contacts might also be remote from the location making it more difficult when scheduling a personal meeting.
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As a franchise tenant, you will want to prepare yourself for lease negotiations with a franchisor, commercial landlord or their real estate agent. Educated franchisees must ask plenty of questions in regards to leasing a preferred location; doing so better assures these franchisees will achieve their maximum potential and will not be taken advantage of. When viewing possible commercial sites for lease, exercise caution for maximum dividends, or don’t hesitate to ask a professional Lease Consultant for help. Following are a few abridged questions that all tenants must ask during the negotiating process either for a new or secondary location. In doing so, you will better protect yourself, your interests and your investment.
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Is the person in charge of property management local? Similar to the preceding point regarding absentee landlords or corporate owners, ensure that your property manager is readily available to deal with any concerns you may have. Property managers may well look after multiple sites (not always in the same city or town) and cannot remain at one location on a full-time basis. The same goes for franchisor property teams and field representatives.
Who is the landlord? Will you be dealing with the franchisor, a large shopping centre group; a bank; or a small, independent “Mom and Pop” landlord? The best negotiating approach depends on who your landlord is.
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How long has the landlord owned the property? A long-time landlord will have gained a wealth of knowledge and experience regarding the property. A franchisor might be more interested in securing the location, but the terms might not necessarily be beneficial to the franchisee. Typically, a long-time landlord will also retain interest in continuing to own the property and have more realistic rent expectations. Conversely, a new landlord may have a high mortgage and may look to his or her tenants
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What is the building’s history? An older building may require further upkeep and maintenance, which tenants pay for in Common Area Maintenance (CAM) charges. If there has been a high turnover of tenants in the past, for any reason, this should raise a big red flag for you. This point is particularly important for a franchisee to investigate, particularly when a previous franchisee occupied those premises. Also, check if a similar-use tenant previously leased space within the property, and either closed the business or moved elsewhere within the past 10 - 20 years?
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