Measure Twice: Beware of Landlords with 13-Inch Rulers
Measure twice so you only pay once.
I have found that some landlords are over-charging multi-unit franchisees for more square footage than the actual available space. Are you paying too much?
Unfortunately, incorrect square footage figures are a common oversight in commercial leasing. Multi-unit franchisee tenants often trust the reported square footage of their leased premises. However, the amount of reported square footage can easily be wrong--whether this figure was accidently reported by the landlord or reported by a property owner who has never even seen the site. The result is that multi-unit franchisee tenants could be needlessly paying an increased rent.
I was having dinner one evening with the chief operating officer of a large franchise organization. She shared that her franchise had recently moved into a new 4,400 square foot space. She went on to explain how spacious, beautiful, and comfortable the premises were. When I asked her if she had ever verified the square footage, she said, 'No.' It took me several weeks to convince her to let me measure the space to determine if she was actually getting the 4,400 square feet that the landlord was charging her for.
When I completed measuring my friend's new franchise headquarters, the measured space was 800 square feet short. In this case, this COO was paying $52,000 more than she needed to for space she didn't have (over the course of her lease term). I proceeded to approach her landlord and, through hard work and diligent negotiations, had the problem corrected. She was reimbursed for her previous overpayments and continued to pay an adjusted rate.
Even a smaller space measurement discrepancy can make a noticeable difference. My accountant came to us for a space measurement. After conducting the work, we found the reported measurement exceeded the actual amount of space by between only 30 - 40 square feet. After going through an extensive negotiating process, our company's accountant received a $3,200 check back - a pleasant surprise!
In the real estate world, we refer to mismeasurements as "phantom space." Even the smallest amount of phantom space can grow to be quite large as rental rates and common area maintenance (CAM) charges increase over time. Even a small discrepancy of square footage can add up when your franchise location is in a high-rent neighborhood. I well remember one retailer who located his shop in a downtown shopping mall; while he leased a smaller space, the rent was quite high due to the premium location. Once again, we prevailed with the landlord and this retailer was reimbursed most of $20,000 overpaid rent.
As one final story, I can share the experience of a coffee shop franchisee (who leased 1,000 square feet of space). She came to us initially to help her with a mid-term rent reduction. While we were successful in decreasing her rent by 30 percent, I also suggested that I could measure her space. After doing so, we learned that her coffee shop measured 900 square feet. Much to the coffee shop owner's delight, her rent and proportionate share of the building's operating costs were subsequently adjusted.
In my experience, many discrepancies are negligent, not necessarily fraudulent. It's never too soon or too late to have your space professionally measured. Nearly all lease agreements state what measurement standard the landlord has used. If you have been taking the landlord's word for the measurement of your premises, you may be overpaying substantially on one, or more, of your franchise locations. Even if you are presented with a "measurement certification," it doesn't protect you from a measurement error.
No one can ascertain the exact size of an area by the naked eye alone. Nor, should a multi-unit franchisee tenant always trust what is stated in their lease agreement. Space measurement can provide peace of mind and can save you thousands of dollars.
For a complimentary copy of Dale's CD, Leasing Do's & Don'ts for Franchise Tenants, please e-mail to DaleWillerton@TheLeaseCoach.com.
Dale Willerton is The Lease Coach and a Senior Commercial Lease Consultant who works exclusively for tenants. Dale is a professional speaker and author of Negotiate Your Franchise Lease or Renewal. Got a leasing question? Need help with your new lease or renewal? Call Dale at 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com / www.HelpULeaseFranchise.com.