Leasing Strategies - Renegotiations And Renewals
There are challenges multi-unit franchisees face in site selection and leasing no matter what kind of market exists. Lease negotiations is an important constant for franchise growth and longevity. Identifying specific issues early in the process can provide powerful leverage to help establish and sustain success.
Earlier this year we interviewed several multi-unit franchisees and got their advice and best practices for site selection and lease negotiations. Here's what two seasoned experts told us about renegotiations and renewals.
Up for renewal
Many franchisees are missing out on a huge opportunity to enhance their position through lease renegotiation, says franchise development veteran Greg Vojnovic. He recommends franchisees approach lease renewal as an entirely separate process and put resources behind it. He suggests using a spreadsheet to keep track and regularly update the base-rent-to-sales ratio for each location and have that information available to educate your landlord.
"When you renegotiate your lease after a period of time or when you buy, that is where the real money is. I call it dialing for dollars," says Vojnovic. "Based on your size, there could be millions of dollars. But it's not just about the money. It's also about key components within the lease that you want to negotiate that are important to your business."
Common requests include defined and fair rent/lease rates, tenant improvement packages, new base years for common area maintenance calculations, a burn-off of any personal guarantee, and other fee adjustments and operating expense caps.
Lease renewals are an organized part of business strategy for Wireless Zone multi-unit franchisee Christopher Severo. He keeps all of his lease files in one place with calendar notices to give him plenty of time to start thinking about his approach. "You don't want to miss those dates and have less leverage," he says.
Generally, most retail lease agreements are up for renewal six months to one year before expiration and require the franchise owner to exercise the right to renew. Other opportunities to enhance your position include at the end of the initial term of a lease, before you negotiate options, when there are changes in the market, and before you remodel. You can also add value to your business by re-upping before you plan to sell.
"Renegotiating is one of those things that people don't think about because it's already done, and they just kind of go with it," says Vojnovic. "Every time you get a chance, take another bite at the apple. You don't just have to sign the contract."
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