Lease Negotiation Tips From Experts
Any experienced multi-unit franchisee will tell you that even the smallest of details in lease terms can make a big difference in a contract over time. There's a lot of money at stake every time a property lease is signed or renegotiated. That's why a session at last year's Multi-Unit Franchising Conference in Las Vegas offered franchisees insight, tips, and tactics on how to deal more effectively with landlords and the lease negotiation process.
Yaron Goldman moderated the panel. He operates Fuzzy's Taco, McAlister's Deli, and MOD pizza locations. The panel included Glen Johnson, an area developer and franchisee of Tropical Smoothie, Bob Dake, VP of Brixmore Property Group, and Ray Harrigill, a franchisee of Hampton Inn, Holiday Inn Express, Massage Envy, Palm Beach Tan, and Bumpers Drive-In. Each of them drew on their own personal experience and knowledge of the lease negotiation process.
Points of discussion ran the gamut from what to include in a letter of intent (LOI) to how to properly consider the economics of the deal.
Ray Harrigill talked about how important it is to have the "big rocks" right up front in the LOI when negotiating with the landlord. "When I go to an LOI, particularly with a sophisticated landlord, I want to have the big rocks in that document that are really important to me," he said. "You want to have your deal breakers because if you can't agree on those upfront then you really don't have a deal." He said big rocks often include things like lease rates, how it's going to be termed, and any personal guarantees. "If you've never been through the process before then it really is helpful to have your broker representing you. If you have a tenant representative or your attorney, somebody that can help advise you as to what those important items are."
Another central discussion point during the session dealt with the economics of the lease deal - everything from base rent to taxes, insurance, and option prices. Glen Johnson said, "With economics, I'm looking at the total cost of what it's going to take to open the cafe in my situation or experience and then I'm looking at projecting out our first year earnings or second year annual earnings and coming up with a return on capital." He said he had targets for all of that and it helps him know and compare different deals with each other. "So if my target is 30 percent return on capital, I'm negotiating a deal and it comes in at 15 percent is what I'm estimating, then I know compared to all the other deals I've done this one needs a little bit of work in order for me to move forward."
Plans are already underway for next year's Multi-Unit Franchising Conference. Look for more details on the conference at https://www.multiunitfranchisingconference.com
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