Prepared for Negotiations: Tips for Negotiating a Lease on a New Franchise Location
While franchisors typically supply name brand recognition, a proven business concept, and extensive franchisee training and ongoing support, most will not sufficiently help you with your site selection or commercial lease. Deciphering the lease agreement document (often 50 to 60 pages in length) and negotiating the best deal is often left up to you. And negotiating this against an experienced landlord or the landlord's broker can be a challenge. Knowledgeable real estate agents and brokers are specialized sales people. Their job is to sell franchise tenants on leasing their location at the highest possible rental rate.
Multi-unit franchisees may have a little leasing process experience - yet they have to negotiate against seasoned professionals who negotiate leases every day for a living.
When you are negotiating a lease for a new location for your franchise, be prepared. Here 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 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. Franchise tenants 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.
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.
Realtors ... Friend or Foe? Real estate brokers typically work for the landlord who is paying their commission. It is not normally the agent`s role to get the franchise tenant the best deal - it is their job to get the landlord the highest rent, the biggest deposit, etc. The higher the rent you pay, often the more commission the agent 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. If there are two agents involved, both splitting a commission paid by the landlord, can either one of them be serving your best interests?
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 What 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. When it comes time to negotiate your lease renewal and, if your landlord is already holding a deposit of yours, negotiate to get that deposit back.
Negotiate, Negotiate: The leasing process is just that - a process, not an event. The more time you, the franchise 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.
As a final warning, some franchisors tend to over-promise and under-deliver on the degree of help they will provide to the franchisee. Alternatively, they may abdicate themselves from the process almost entirely by hooking the franchisee up with a broker in the franchisee's city. Whether your association with a broker comes independently or via franchisor referral, always exercise caution and ask yourself, "Who is the broker really working for?" While franchisors may provide much to new franchisees, you may be greatly disappointed in what you receive from your franchisor when it comes to real estate leasing and support.
To receive a free CD called Leasing Do's & Don'ts for Franchise Tenants simply e-mail me at DaleWillerton@TheLeaseCoach.com and even request a no-obligation consultation. Remember, a great franchise in a poor location will not achieve its maximum potential.
Dale Willerton is The Lease Coach - a Senior Commercial and Retail Lease Consultant who works with franchise tenants across NorthÂ America. Willerton is author of "Negotiate Your Franchise Lease or Renewal"; he speaks frequently at franchise shows and provides real estate training to franchisors and chains. Visit www.TheLeaseCoach.com / www.HelpULeaseFranchise.com, e-mail to DaleWillerton@TheLeaseCoach.com or call 1â€‘800-738-9202.