The topic of finding a good location and then negotiating a favorable lease is one that all franchisees face when they are in a site-based franchise system. Because most new franchisees do not have any experience in finding a location, they can experience significant anxiety if the proper assistance is not available from the franchise company.
Most site-based franchises have support available to help with this issue, but that support varies from company to company. One of the critical issues to address in your research of prospective franchise offerings is the amount and type of such real estate support.
There is usually a team approach to finding the location and negotiating and finalizing the lease. The team consists of you, the franchisor, a local commercial real estate broker and a good lease attorney.
Most franchisors provide you with specific selection criteria for finding a good site. This information covers topics such as the demographic characteristics and population density, traffic and parking parameters, and the importance of site visibility to the success of your business. They often provide other helpful information, such as the type of tenant mix that is preferable in a shopping center you are considering or which side of a busy street you should be located on.
Most franchise systems assume you'll do most of the legwork in terms of locating a prospective site, based on the selection criteria they have provided. In many cases, the franchisor requires that they have consent to any site and may ask you to provide them with information (often including pictures or videos) about the site prior to consenting. Some franchisors send one of their operations support staff out to your market to personally verify the acceptability of the site prior to consent.
After you have found one or more acceptable potential locations, you will move on to lease negotiations. This is where you determine the economics of the locations you have found and also any other considerations that might be important to your specific business.
The economics of a location revolve primarily around the rent. Another possible factor: percentage rent clauses that escalate your rent as your business grows over time. There are also commonly clauses requiring you to pay for common area maintenance, real estate taxes, landlord insurance and other expenses. You need to work with the franchisor and the local real estate broker to make sure these other expenses are reasonable.
The franchisor and the broker should also help you identify financial assistance available from the landlord. This commonly comes in the form of free rent allowances and tenant improvement allowances. This can represent a significant amount of money, so make sure you pursue this area.
When the principal terms of the lease have been agreed to, you will typically have the lease reviewed by the lease attorney. This is a specialized area of the law, and you need to make sure you're dealing with an attorney who is experienced in reviewing leases.
The franchisor should also have support materials to assist you and the lease attorney in the lease review process, such as sample language for "use" clauses that need to be included in the lease, or suggestions for language restricting competing use by other businesses in the center. The franchisor will typically also have language suggestions relating to other normal and standard clauses lease contracts.
In some cases, the franchisor may even have a suggested lease document they would like you to propose to the landlord. Keep in mind, though, that your bargaining power with landlords is often not as strong as theirs, so you typically have to work from their standard lease document.
Throughout this entire process, you are the main player. The rest of the team, including the franchise company personnel, should be your support system to help you get the best site on the most favorable terms possible.
When you are investigating any franchise company, always ask the existing franchisees about their experiences with the real estate process. Ask about each of the factors mentioned above and find out whether they had any other unforeseen problems. Finally, make sure to find out how long the entire process took them from start to finish and whether their time frame was normal and met their expectations. This type of research takes time, but will arm you with the knowledge you need to avoid unpleasant surprises when you become a franchisee.
Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.