In commercial and retail real estate today, there is a significant shift in leasing to franchise tenants in the tenant mix. The reason being, that franchise groups bring a brand name and a business model to any vacant area in a property.
Not all franchise tenants are the right choice for a commercial or retail property. Due regard should be given to the existing mix of tenants and just how the franchise tenant will integrate into the overall property. Some of these franchise tenants can create extra demand on the property such as:
- Access to the premises
- Rubbish and waste disposal
- Car parking
- Customer access
- Hours of operation
- Marketing and display of signage, etc.
So a lease for a franchise tenant should be carefully considered and negotiated. That being said, many franchise tenants will have their own lease to submit to the landlord of a property. Whilst that is convenient, the landlord should carefully consider the differences between the franchise tenant lease and the standard lease for the property. In most cases the lease provided by a franchise tenant focuses on just one thing; the running of the franchise business.
Here are some tips for negotiating leases with franchise tenants today:
- Meet the tenant on site and walk through the factors of occupancy that are critical to the operation of their franchise business.
- Understand that the franchise business will have a business agreement that will need to integrate with the duration of the lease of the property. Some landlord flexibility may be required to make that match.
- Ask questions about special occupancy needs such as grease traps, air conditioning, cleaning, refuse, and customer involvement. If there is a cost to be considered, ask about who pays.
- The make good provisions at the end of the lease will always be important. The landlord requires clean and reinstated premises.
- Understand just how the tenant will be integrating their marketing into the property and what signage they will require for the process. They will need to position signage where consistent branding messages are conveyed to the customers and passing traffic.
- If the tenant operates outside of standard property hours of operation, it will be necessary to consider the costs that occur as part of that process. The costs should be directed to the tenant to pay as part of the lease structure.
- As to who will be the lessee in the property will be a valid and important question. Normally the franchise group does not want to lease a tenancy space unless it is of prime importance to their business model and operation. That is why they only directly lease the prime locations.
A franchise type tenant is a good tenant; they just need extra attention to ensure that the lease in the property works for both parties.
Asking questions in the lease negotiation will always help with the future occupancy for both parties. Look for any issues of challenge and deal with them upfront.