Choosing the right site and negotiating the right lease for your franchise is a complex task, and one that can significantly influence the success — or failure — of your franchise. What kind of assistance can you expect from your franchisor when it comes to helping you select the right location and negotiate the best lease terms possible?
Many franchisors have an in-house real estate person — or even a department. These people are there to help you find the right location and negotiate the right deal, and their assistance is included in the franchise fees you pay.
The kind of assistance you can expect from an in-house real estate team varies from franchise to franchise. Some franchisors will have sites in their portfolio for you to consider; other times, you’re on your own. The tools the real estate team can offer you will also vary. Many times, these are simply a compilation of information provided by real estate brokers, such as demographics, site plans and traffic counts. Finally, keep in mind that some franchisors may have one real estate person who works out of the corporate office and flies around the country to help franchisees. This type of person may not be as familiar with your local market as you’d like.
As you work with your franchisor’s real estate team to find the right site, understand that they are working with a lot of other franchisees, too, and that their job with the franchisor is to “get the deal done.” That’s why it’s important not to rely solely on the franchisor’s assistance. To choose the best site, you will need to put in some legwork on your own. (For more on that, see Do-It-Yourself Site Selection for Your Franchise).
Lease negotiation is an area in which most franchisees have little experience, and the landlord and his or her attorney are formidable opponents. Too many times a franchisee will sign the lease just as presented, or even feel that he or she has won some major points, when he or she has actually left significant money on the table. The landlord and his or her attorney know more than you do; often, you may not even know the right questions to ask to negotiate the best lease.
The franchisor’s in-house real estate person can help you here, but, again, the operative word is “help.” If the franchisor’s real estate person is simply a captive broker — one who works exclusively (or semi-exclusively) with the franchisor — you may have even less of an advocate. It’s not that brokers aren’t responsible, ethical agents, it’s just that they can be focused on getting the deal done and getting paid; it’s only human nature.
Some franchisors have in-house or contract real estate attorneys who will review the lease for you. But I suggest you also take the landlord’s lease to a qualified real estate attorney, and have him or her review it. You may spend $1,000 to get his comments, or $2,000 to $3,000 if he or she handles the subsequent negotiations for you. This expense is worth it — many times over. You need only one “glitch” in your five- to 20-year relationship with your landlord to make a few thousand dollars seem like the best investment you ever made.
If you can get additional expertise from the beginning of your site selection process, I recommend you consider it. Check online for “site selection consultants,” and try to find one that deals exclusively with franchisees — most deal primarily with corporate clients and franchisors, and often come from broker or developer backgrounds. Experience working with franchisees is usually only possessed by individuals whose background has been in the real estate departments of large, credible franchisors.
Take site selection and negotiation very seriously, and don’t be in a hurry. Once they’ve signed their franchise agreement and purchased their franchise, most people want to be open and doing business in the shortest time possible. However, keep in mind that this is a big decision — you are making a sizeable investment and committing to a five- to 20-year lease obligation. Accept the fact that it will take a year or more to find the right site, negotiate the right lease, and open your store.
Jeff D’Arcy has served as a real estate executive with high-growth companies such as McDonald’s, Payless ShoeSource, and Blockbuster, and is now an active consultant for franchisees and prospective franchisees in evaluating franchise concepts and selecting the right location. Jeff is also the host with Gini Dietrich of The Franchise Show featured on Allbusiness.com and heard every Friday 3-4 p.m. PDT and 24/7 in the archives at www.FranchiseShowRadio.com.