Depending on the franchise system, the franchise agreement may or may not require you to search for the location of your business as well as negotiating and signing of the lease. You may find this to your liking or not – it all depends on how much control you want over your businesses’ destination.
Should It Be Your Responsibility to Negotiate a Lease?
One of the advantages to buying a franchise is that the Franchisor should have already done the research and development to establish a suitable location with success potential. If this will not be done for you, it’s important to ask why. Otherwise, the Franchisor should have assigned a general area in your territory where you are to select your site with qualifying critera for the lease space.
Negotiating a lease is not a step in the franchising process that you should take lightly. Never commence talks with landlords, their agents or lawyers without having your own representation nearby. Leases come in all shapes, colors and sizes and while many of the same clauses are inked in the contract, the wording can make leases have a life of their own. Besides, legal fees for lease review shouldn’t amount to much, perhaps an hour or two of time. A typical fee charged for review and recommendations is about $500.
To ensure that you are getting the best bang for your buck for the space and the fairest deal possible, here is what you should keep in mind when reading through the paperwork:
1. Cost Per Square Foot
The lease should outline the square footage of the space and a drawing should be supplied to that effect. Measure the space out yourself to verify the floor area as per the drawing. Match up the figures: is there square footage you will be paying for that isn’t “useable” for your use? Make an effort to negotiate the square footage down as much as possible. You should pay for only what your business expects to use.
2. Length of Lease
The standard lease will be written for a five-year term but sometimes landlords will want a 10-year deal seeing that the business will be a franchise. Since you hold the negotiating reins, aim for less than five years and explain to the landlord’s reps that a shorter term can only benefit both parties (even though this is not the case for the landlord). Shorter terms may sometimes mean paying a premium for the space but avoid this last resort option if possible. Do the math: if your business were to last only two years at most, would you be saving by paying the premium versus any of the early termination costs, if applicable?
