By Dale Willerton and Jeff Grandfield
A: Many potential franchisees and have never signed a commercial lease before. They’re not only faced with selecting a great franchise system, but also understanding the complexities of commercial leasing. Here are some of the many questions that franchisees need to ask their franchisor before beginning the site selection process:
Will the franchisor sign the Head Lease and sublet the space to the franchisee – or will it be the franchisee alone who signs the lease?
Whichever party signs the Head Lease will assume the ultimate responsibility for the lease. Most franchisors want to avoid liability if the franchisee fails; therefore, more often than not, the franchisee solely signs the Head Lease. Ideally, the franchisee would want to sign the Head Lease to retain as much control as possible.
What role(s) will the franchisor and franchisee play in the site selection and leasing process?
Some franchisors provide next to no real estate or leasing help, while others may delegate the process to a real estate agent who may care more about his/her commission than the franchisee’s long-term viability.
Will a real estate agent or broker be involved in the leasing process?
There are most commonly two types of agents – the listing or inside agent and the outside agent. You will recognize the listing agent as having his/her “For Lease” sign on the building. This agent’s job is to get the landlord the best deal possible. Some franchisors match their franchisees up with local brokers (outside agents) who find a location and do the deal, but ultimately receive a commission cheque from the landlord.
Will the franchisee have final control or say over the location and lease terms?
Most franchisors will defer to a franchisee’s wishes when it comes to choosing between two or three sites for lease. Have you confirmed you have that right? The franchisee is the one taking the risk, signing the lease and paying the rent – make sure you have the power of veto when it comes to site selection.
What if a good location or reasonable lease deal cannot be found?
Don’t assume that just because you buy into a franchise system, there will be a location or landlord waiting to take you in.
How will my site(s) ultimately be approved or denied?
Most franchisors will provide a checklist in advance to be completed on various sites to determine their potential. Desired criteria would include traffic count, demographics, etc. However, not all franchisors will send someone from their head office to negotiate or personally visit your city or site. So determine in advance if you want to get the help of a hands-on professional.
Dale Willerton and Jeff Grandfield
The Lease Coach
Adapted from the July/August issue of FranchiseCanada. Check out the current issue of FranchiseCanada, on newsstands now, or you can order your subscription by calling 1-800-665-4232 ext. 224.