In retail real estate today, the franchise groups in your city or town could be a good source of tenant opportunity. That being said, franchise groups have special property needs that relate to a future lease. In many cases they will have a standard lease to reflect those occupancy conditions.
So if you are negotiating a lease with a franchise group type tenant, do not be surprised if they present their lease as that which they hope will suit your property and their occupancy.
The lease they give you needs to be fully reviewed and adjusted so that it includes the normal terms and conditions that a landlord would want in their property.
A franchise tenant in many cases will bring advantage to a retail property. Some of those advantages are:
- A brand name that attracts shoppers or customers to the property
- A standard business model that is already proven in other locations
- A group of franchise operators that are already trained in the business and will be given ongoing franchise group support.
No franchise group likes to see their brand suffer at the hands of a poor retailer or tenant. In that way they are very selective before lease discussions start with the potential operator of the business.
Will the franchise group be the lessee on the lease, and will it be the operator of the business as the lessee? There is no common rule here; generally the franchise groups today will only take out leases on highlyought after locations so they can protect their brand penetration. Most other ordinary locations will be a direct lease with the business owner that has taken out the franchise agreement.
Many leases that involve a franchise group will have to match the duration of the franchise business agreement that exists between the franchise group and the potential tenant. In essence you can not have either without the other.
Landlords should for that reason be flexible with lease terms and option terms so the ideal match between the lease and the franchise business agreement can occur.
So what other things are likely to be special when it comes to a lease negotiation with a franchise type tenant? There are likely to be many but here are some of the main ones:
- The size of the awards will be of a standard to allow the tenant to operate within the established franchise agreement.
- The branding of the shop or tenancy will need to be standard to and in keeping with the franchise image. The landlord should allow the consistent brand to be installed into and around the property to attract the right customers for the shop or tenancy. On that basis normal rules that apply to marketing material in and around the property may need to be adjusted for the franchise tenant.
- The franchise tenant and the licensor will be tracking sales numbers so they know that the business is thriving. That being said, the landlord should still ask for sales figures on a monthly basis so they know that the property and the tenancy are on track to a mutual success. This focus can be created in the lease document.
If a landlord is negotiating with a franchise type tenant, the landlord should make sure that their interests are protected by having a very good property solicitor to represent the landlord's position and requirements as the lease takes shape. A leasing agent understands the leasing process, but the solitor can add real value to the process and help create a good lease document.