How to terminate a franchise agreement
Although a franchisor will give you the tools,...
Identifying a franchisor that interests you can be easy … choosing a commercial site to conduct business from can be far more difficult! But potential and new franchisees have to give site selection a great deal of attention and respect as selecting to wrong location can, ultimately, lead to poor business performance or even complete failure.
As we explain in our new book, Negotiating Commercial Leases & Renewals FOR DUMMIES, site selection is largely about location, location, location. Your franchisor understands this and may have provided you with a checklist of desirable criteria for a site. Without such a checklist, franchise tenants have to rely on common sense (which, unfortunately, often goes out the window when one is looking for a new business home).
Considering the importance of proper site selection, we have devoted an entire chapter to this issue in our book. Here are just a few relevant tips from the experts:
1) Allow enough time so that you’re not making decisions under pressure. Typically, for a new business or franchise, you should start the site selection process six to nine months in advance of when you want to open. If you find a prime location, usually the landlord will hold it for you for a few months. However, if the process takes longer, you may need several months to finalize the Offer to Lease, review the formal lease documents and/or build out the store.
2) Make your leasing inquiry by calling the “For Lease” number on the property sign. This way, you will meet and negotiate with the listing agent directly. Tour prospective sites all at once but in order from worst to best. This way, you will become more confident, ask better questions and be more in control of the leasing process by the time you react to your favourite site.
3) Don’t let one agent show you space all over town. Tenants often fail to realize that agents/brokers typically work for landlords who pay them a commission on lease deals signed and closed. When one agent shows you another agent’s listings, this will effectively create commission-splitting between the property’s listing agent and the leasing agent. This will also undermine your negotiating power since the real estate agent will know how you feel about every location. An agent may be very helpful in pointing out a location you were unaware of, but remember who they are working for. While their advice may be sincere, it may be sincerely wrong.
4) Don’t telegraph your
intentions by giving buying signals. Ask the leasing
representative to e-mail you preliminary information before you
agree to view the space. When viewing, stifle the urge to think out
loud; subtle comments to a partner/spouse and overheard by the
leasing representative can work against you. If you’re asked how
much you have budgeted for rental payments, remain vague. Not every
question asked deserves an answer – not yet, anyway.
If you find yourself weighing a better location at a higher rent versus a lesser location at a lower rent, our general advice is to often go for the first option when the choices are close. When consulting to tenants and doing site selection, our job isn’t to find the cheapest location, it is to select a site that will help the tenant maximize his/her sales volume.
Also remember that landlords sometimes prefer to lease their worst space(s) first and save the best space(s) for last. Sometimes, the individual unit or location you lease within a shopping centre or strip mall is more important that the mall itself – or at least equally important. Know that lease rates within a building can vary two to three times depending on unit desirability, walk or drive-by traffic flow, space shape, quality of neighbouring tenants, anchor tenants and your operating status as an independent or a national chain name. While you don’t always get what you pay for in leasing commercial space, you normally don’t get more than you pay for either.
Note that if you are an office or industrial-type tenant, location is not as critical. Therefore, you should have the upper hand with negotiations. Also note, if you already own a business or franchise but are considering relocating when your current lease expires, start your site selection at least nine months ahead. If you cannot get a satisfactory lease renewal, you will need this time to select alternative sites and negotiate a new lease elsewhere.
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.