Franchises and Leasing Commercial Space
While many prospective franchisees will explore various franchise concepts and carefully evaluate different options before deciding on their own futures and paying a substantial franchise fee, they will often overlook a key issue. This fact is that many franchisors often fall short in the area of providing their franchisees with real estate help.
A franchisee ignoring this issue or making assumptions about a franchisor’s involvement may well lead to business and/or financial disaster. While The Lease Coach is a strong supporter of the franchising concept, we simply have to be realistic. In our experience, we have found that many franchisors simply lack the time, money and/or manpower to effectively offer real estate help and we would like to stress this fact. Therefore, the new franchisee is often left to struggle through the site selection and lease negotiation processes independently. You’ve likely heard the old adage, “location, location, location”, correct? Well, nothing could be more true for business-owners (whether independent operators or franchisees). Where you set up your shop can play a major impact in the ultimate success or failure of your business. Therefore, it is very important that you don’t rush the site selection process and get professional help.
So, before you jump in to a franchise opportunity, confirm with your franchisor how much they will assist you. Essentially, you can expect to hear any one of the following three answers:
1) The franchisor, will conduct site selection, secure and lease the location and then sublease the unit to the franchisee.
There are pros and cons here … the franchisee must accept the chosen location; however, the franchisee does not accept final responsibility for the lease. This will be the franchisor’s responsibility as they have signed the location’s “head lease”. Along with maintaining control over the location, the franchisor has the option of reselling the business (and existing location) to another new franchisee.
2) The franchisor, will conduct site selection, however, we will require the franchisee to handle his/her own lease negotiations.
This arrangement certainly does not favour the franchisee! Franchisees are, for the most part, inexperienced with lease negotiating matters while agents do this routinely. Consider a novice player matched up against a master in a game of chess – just who has the advantage? As a result, that franchisee can blindly agree to an inappropriate lease term, accept too much commercial space for his/her actual needs and/or miss out on receiving valuable tenant inducements paid by the landlord (including tenant allowances, build-out assistance and/or free rent).
3) The franchisor, will completely remove ourselves from the entire site selection and leasing processes.
Without any help and/or guidance, the franchisee will often proceed blindly. We have seen far too many new franchisees mistakenly fall in love with the first location they see, fail to negotiate the lease terms and blindly sign on the dotted line.
As part of a recent leasing webinar The Lease Coach conducted for a recognized franchisor, the participants were polled about this very matter. We found that 90% of our respondents were unhappy with what amount of real estate help they had received (or not received) from their franchisor. While we did not probe for more details, we can safely presume that either the franchisees did not initially ask about this or the franchisor did not completely explain.
Yes, a collaborative relationship between a franchisor and a franchisee can greatly benefit both parties and become a “win-win” situation for all. But, it remains important for the new franchisee to do their homework, read the fine print and ask plenty of questions. It’s not that a franchisor doesn’t want to help a franchisee to succeed, it’s that the franchisor is often limited.
For a copy of our free CD, Leasing Do’s & Don’ts for Franchise Tenants, please e-mail your request to DaleWillerton@TheLeaseCoach.com.