When buying into a franchise, a question that most...
Counteroffering the Landlord’s Lease-Renewal Proposal – For Franchise Tenants
As a prospective or new franchisee, you will have to deal with the initial commercial lease. When you do open for business, you will, in due course, have to deal with a commercial lease renewal. Much like the initial lease, a lease renewal should not be simply accepted as presented … you can – and should – renegotiate the terms to your benefit. Therefore, the landlord’s lease renewal proposal is just the beginning.
When negotiating your lease renewal, remember to put your signed counteroffers in writing, with an expiry date within which time the counteroffer is open for acceptance. You have likely had a prior verbal conversation with the landlord or their representative about renewing your lease. Giving your landlord some advance notice is our recommended approach, so he will expect to be meeting with you and will not be surprised.
If you have a complaint about the potholes in the property’s parking lot, start by asking your landlord about them. Your landlord may reply that pothole repairs are already scheduled – in this case, you will not have to pursue the matter. The only thing required is a written confirmation from the landlord that the pothole work will be done. Determine the list of items you need to address well in advance and be prepared to discuss them with the landlord and include them as part of the negotiation.
If you have seen a reduction in sales, now is the time to request a rent reduction. Low sales may be caused by any number of reasons – there may be many vacant units around you, the anchor tenant may have moved out of the property, an industry competitor may have opened up shop nearby, the economy may have shifted, or another landlord has built a brand-new development close by that is drawing customer traffic away from your location.
We also frequently recommend that you shop your tenancy around to other landlords prior to signing a lease renewal with your current landlord. By doing site selection, you can motivate your landlord who may fear losing you as a rent-paying tenant. Even if you don’t want to move, you can keep this fact quiet to your current landlord. Simply explain that listing agents from other properties have contacted you to offer leasing opportunities elsewhere. To strengthen your case, collect written Offers to Lease from other agents/landlords and show these to your own landlord.
Granted, doing site selection takes time and effort and you may think that you could just bluff your way through this. It is far better to do the actual legwork required as commercial landlords often have a pretty good grasp on other spaces for rent and asking rents. When doing site selection, consider all properties available – even if they vastly differ from your current location. At the end of the day, if you move out, your landlord will lose your vacancy and have to start from square one with trying to replace you. This means listing the space again, fielding enquiries, and waiting for a new tenant to commit to a Formal Lease Agreement. While this happens, your space often sits empty and does not generate any income for the landlord.
As a final note, you can realistically expect some challenges with renegotiating lease terms. Things don’t always go as planned! Allow for plenty of time, effort, and negotiating expertise when counteroffering your landlord’s lease renewal proposal. Don’t rush into anything that you may regret later!
For a copy of our free CD, Leasing Do’s & Don’ts for Franchise Tenants, please e-mail your request to JeffGrandfield@TheLeaseCoach.com.
Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.