Franchisees: Negotiate Your Commercial Lease
Editor's note: Dale Willerton, known as "The Lease Coach," shares top tips with franchisees on how to better negotiate your lease. Willerton is a senior lease consultant who works exclusively for independent and franchisee tenants.
Prior to launching into the commercial leasing process, franchisees must determine what support they will be receiving from their franchisors along with who will be helping them. It is vital to ask the following questions to gain a better understanding of your own obligations in this process.
Does the franchisor have a dedicated real estate department (someone on staff to specifically help you or do it for you)? Is the person helping you working on salary from the franchisor? Is the person helping you being paid on commission from the landlord?
Whether you are negotiating a lease renewal or leasing a new location for the first time for your franchise, these are some tips for franchise tenants:
- Negotiate to win: All too frequently, franchise tenants enter into lease negotiations unprepared and don`t even try winning the negotiations. If you are not even negotiating to win, you won`t. With big commissions at stake, you can be sure the landlord`s agent, on the other hand, is negotiating fiercely to win. Franchisees should remember that it is okay to negotiate aggressively.
- Be prepared to walk away: Try to set aside your emotions and make objective decisions. Whoever most needs to make a lease deal will give up the most concessions. A good franchise in a poor location will become a poor business and much more difficult to sell in the future, if you choose to do so.
- Ask the right questions: Gathering information about what other tenants are paying for rent or what incentives they received will position you to get a better deal. Ask the right questions. Consider that your landlord and his agent know what every other tenant in the property is paying in rent, so you must do your homework too.
- Brokers â€¦ friend or foe? Real estate agents and brokers typically work for the landlord who is paying their commission. It is not normally the listing agent`s role to get the franchise tenant the best deal â€“ it is their job to get the landlord the highest rent, the biggest deposit, etc. The higher the rent you pay, the more commission the agent normally earns. If you are researching multiple properties, try to deal directly with the listing agent for each property, rather than letting one agent show you around or show you another agent`s listing. Your tenancy is more desirable to the listing agent if he can avoid commission-splitting with other agents.
- Never accept the first offer: Even if the first offer seems reasonable, or you have no idea of what to negotiate for, never accept the leasing agent's first offer. In the real estate industry, most things are negotiable and the landlord fully expects you to counter-offer.
- Ask for more than you want: If you want three months free rent, then ask for five months. No one ever gets more than they ask for. Be prepared for the landlord to counter-offer and negotiate with you as well. Don't be afraid of hearing "no" from the landlord. Counter-offers are all part of the game.
- Negotiate the deposit: Large deposits are not legally required in a real estate lease agreement. Deposits are negotiable and, more so than anything else, often serve to compensate the landlord for the real estate commissions he will be paying out to the Realtor. If you are negotiating a lease renewal and your landlord is already holding a deposit of yours, negotiate to get that deposit back.
- Measure your space: Franchise tenants frequently pay for phantom space. Most tenants are paying their rent per square-foot, but often they are not receiving as much space as the lease agreement says.
- Negotiate, negotiate: The leasing process is just that: a process, not an event. The more time you, the franchisee tenant, have to put the deal together and make counter-offers, the better the chance you have of getting what you really want. Too often, franchise tenants mistakenly try to hammer out the deal in a two- or three-hour marathon session. It is more productive to negotiate in stages over time.
- Educate yourself and get help: Unless you have money to throw away, it pays to educate yourself. Taking the time to read about the subject or listen in on a webinar will make a difference. And, don't forget to have your lease documents professionally reviewed before you sign them. With hundreds of thousands of dollars in rent at stake, personal guarantees and other risks, you can't afford to gamble. In leasing, franchise tenants don't get what they deserve, they get what they negotiate.
For a complimentary copy of Dale’s CD "Leasing Dos & Don’ts for Franchise Tenants," e-mail him at: DaleWillerton@TheLeaseCoach.com.