Initiating the Lease Renewal Process – for Franchise Tenants
How much time should you allow before your lease renewal?
Ideally, a franchise tenant will want to start the lease-renewal process a minimum of 12 months in advance of their lease expiration date. More precisely, look at your renewal-option clause. If this says your cutoff date for exercising your lease-renewal is six months before the lease expires, you would start the renewal process six months before that – or a total of 12 months in advance. If your renewal-option clause states that your cutoff date to exercise the renewal-option clause is nine or 12 months before the lease expires, then start the lease-renewal process 15 or 18 months in advance.
Even though franchise tenants are desirable tenants for landlords (due to increased name recognition, higher customer traffic, and better leasing stability than independent tenants), your strength or leverage may lessen the closer you get to the cutoff deadline. Therefore, the farther in advance that you can find out what the landlord wants to do with your tenancy and rental rate the better as you will have more time to react. Many landlords want and plan to have their tenants renew but some may have ideas to dramatically increase your rent or other plans for your commercial space altogether. If you’re going to get bad news, you will want to hear that information sooner rather than later.
This also applies in cases where you don’t have a renewal option and want to remain in your same location. The closer you get to the end of your lease term, the less relocation time you have, and the clearer it becomes to the landlord that you cannot or do not intend to consider relocating. There’s also the peace-of-mind factor of putting the lease-renewal to bed well in advance, if possible. You may want to plan renovations or, as a franchise tenant, you may need to also negotiate your franchise-renewal agreement or extension. This actually happened with one of our franchise tenant clients … his franchise agreement expired many months before the lease agreement was sent to end (because he signed the franchise agreement almost a year before he opened for business).
Ideally, your lease and franchise agreements should run parallel, both expiring at the same time. In this case, we told this franchise tenant it would be easier and more beneficial to get the franchisor to extend the lease agreement for eight months or so to align with the lease agreement. He did this and things worked out just fine.
When the time comes to renew your lease agreement, your goal is to receive a written lease-renewal proposal from the landlord or property manager, rather than you making a first offer to either of them. Your first request may fall on deaf ears but be persistent. Landlords and/or property managers may not immediately respond to you for a number of reasons:
They think it’s too soon and want to wait before starting negotiations on the lease agreement.
They tell you to exercise your renewal option and this is the only way to proceed. This is not true! In some cases, we strategically waive the option to renew so the landlord can’t use this as a reason to exercise well in advance of the expiration. Doing so allows us to negotiate all the terms, not just the rent.
They may tell you to make a proposal to the landlord. In some cases, you may have to do this. This may be an instance when having other landlords actively competing for your tenancy may spur your landlord to provide you a renewal proposal rather than risk losing you.
Franchise tenants may misread the situation. Lack of experience, fear, and/or intimidation may creep in and the tenant caves to one of these reasons. Remember that you’re the landlord’s customer. Reiterate your position and wait them out. When we do this, we’re not waiting without action. We are collecting other lease proposals from other landlords and creating a situation more favorable to the franchise tenant – including evaluating optional locations for lease elsewhere.
Learn more about franchise business opportunities in Canada at Be The Boss.