Smart shoppers, typically, ask plenty of questions about a product and/or service before they buy. Franchise tenants preparing for lease negotiations need to follow that example! Before you agree to any lease terms and sign on the dotted line, you will need to know all you can learn about both the commercial property and the landlord.
As The Lease Coach, we have been consulting with commercial tenants since 1993 and recommend the following “Top 10 Questions” that all tenants must ask during the negotiating process either for a new or secondary location.
- Who is the landlord? Will you be dealing with a large institution; a bank or a small, independent, “mom-and-pop” landlord? Different types of landlords will require different negotiation approaches (for example, with a large institution, you may have to wait weeks to connect with someone to discuss a problem while with a mom-and-pop landlord, you could simply just knock on their door).
- How long has the landlord owned the property? Long-time landlords will know a great deal about their own property and are usually interested in keeping it. Franchisee tenants will also find that long-time landlords, typically, will have more realistic rent expectations as their mortgages can be fully paid off and will not have to charge their tenants higher rents to help cover this cost.
- Where is the landlord physically located? Local landlords with office space within the commercial property of interest or just down the street are often more accessible to tenants. We remember one of our tenant clients who often could not reach his own landlord – the reason was that this landlord was a 70-year-old doctor who continued to practice part-time as well as travel. Personal meetings, therefore, were made more difficult.
- Is the person in charge of property management local? Similar to local landlords, local property managers are also more available for tenants. In this business, it is not uncommon to see property managers overseeing a number of commercial sites and travelling between them.
- What is the building’s history? As a franchisee tenant, you will need to ask about both the exterior and interior history of building. With exterior history, we are referring to building maintenance. This includes property upkeep, garbage removal, and landscaping which tenants help pay for through a property’s Common Area Maintenance (CAM) charges. Tenants leasing in an older building should expect higher CAM charges to cover the additional care of such a building. Ask about what has been going inside the building as well. Are the tenants stable? Has there been a high turnover of previous tenants? Has a similar-use tenant previously leased space within the property and either closed the business or moved elsewhere within the past 10 – 20 years? These are the types of questions you should ask.
- Who is doing the leasing for the property? Is this a big leasing brokerage, a real estate agent or the landlord’s son? Be mindful of what you hear from agents as well. While they must follow a code of conduct, they can only share what they have heard from the landlord about the property. As a prospective or current franchisee tenant, you may hear anything from a less than reputable landlord who may tell you anything to get you to sign or re-sign.
- Who were the two most recent tenants to move in and when? After you are referred to these tenants, personally contact them, introduce yourself, and ask them for their thoughts and/or opinions on their own recent lease negotiations. The leasing agent may claim that he/she has only recently acquired the property listing and is unaware of all the tenants so far. Do not accept this – it is the agent’s job to be familiar with the property and who is leasing space within the property.
- Who were the last two tenants to move out? Similar to the above, you will want to contact these tenants and ask for details. Press for details as to when and why they moved; where they moved; and what they thought about the landlord, property manager, and the commercial property.
- Who is the property’s biggest tenant (the anchor tenant)? Anchor tenants typically attract the most traffic property, but even anchor tenants can close or move. We remember a number of tenants in a local strip mall who were surprised when the major grocery store anchor tenant moved out. Despite having a long-term lease, this grocer can often move their business but continue to pay the rent, thus disallowing any competitor to move in.
- Is the building for sale? Building owners looking to sell their building will have different motivations with prospective tenants. Also, consider that you may like the current landlord but dislike the new landlord.
Dale Willerton and Jeff Grandfield
Commercial Lease Consultants
The Lease Coach