Leasing Headway with Franchise Tenants

Today, in commercial and retail property, franchise-type tenants offer a real advantage to landlords who own investment properties. 

These franchise groups or tenants provide an established business model and, in many respects, proven tenants who can operate a business successfully. When it comes to investment property performance, this is a very good thing. Great tenants help every retail property perform to income and occupancy expectations.

Every franchise business or brand has a specific business model. Certain occupancy needs must be satisfied for a lease negotiation to work.

Franchise Groups and Tenants

As a leasing executive, you can earn very high lease commissions from working with several of these franchise business groups or identities. 

It is a matter of understanding what they are looking for and matching the properties or listings to the requirements.

Franchise Tenant Leasing Requirements

Here are some ideas to start a checklist of tenant requirements when working with this type of business tenant.

1: Standard Lease Terms

They will have specific terms and conditions for leasing commercial or retail premises.  Generally they will have a standard lease that supports those requirements.  Ask for a copy of the standard lease they use when negotiating the lease of new premises in your area. 

It should be noted that the standard lease will be designed to suit their franchise agreement.  It is for this reason that their standard lease will be required when it comes to negotiating any new lease occupation.  Most landlords should adjust to this lease document, however some terms and conditions will be negotiated and be made more favorable for the landlord and the property.

2: Region and Location

The locational requirements for a franchise business will be well-defined and substantial. When shortlisting potential premises and targeting ideal locations, seek details of exactly what they are looking for. Improvements, services, and amenities are all part of property choice and selection.

3: Competing Franchisors

The competition within their business type will have relevance to a final property location and leasing decision.  They will assess the location of competing franchise businesses and customer spending patterns.  Look at the general area to identify any businesses within particular types that could have an impact on the decision of a franchise store location.

4: Demographics and Customer Base

The franchise business will understand their customer base better than you.  They will assess the strength of the retail customer base throughout the local area and any growth that they can expect.  Having information regards the local community and regional business profile will help you in working with these factors.

5: Operational Convenience

Ease of property access and business function will always be important in a final property selection and leasing decision.  A landlord that is proactive maintaining a property, will help the function of the property and the tenants in occupation. 

The property will need to have factors of occupancy convenience and the right improvements to help the business thrive.  Landlords should expect that the maintenance and upkeep on the property will be assessed by the tenant before a property lease is finalized.

6: Lease term and Franchise Agreement Term

The lease term as several years and the availability of an option term will have relevance to the franchise agreement.  If there is any mismatch between the two documents, it is unlikely that the franchise tenant will negotiate to occupy the premises. 

Most franchise agreements are for a period of 5 or 10 years.  The lease document for the property must reflect that time frame so the tenant can operate within their business agreement.  The business agreement is also geared to financing the business, so everything is linked to the tenant’s success.

7: Rental Escalations and Market Trends

The initial starting rent and the rent review profile will set the rental escalations in a lease.  Most tenants like to understand that they have some control over the rental escalation process and that it is in keeping with the local area business growth expectations.  You can mix and match the rent review types to make the rent structure work for the tenants and the landlord.

8: Shop Branding

The branding of the premises and the tenancy will need to be suitably flexible to allow the franchise group to establish its brand. The lease document should reflect signage agreements and approval processes to protect the premises from excessive signage and give the tenant the necessary flexibility for correct branding.

9: Tenant Mix Compatibility

The tenant mix in the property may be important to the franchise tenant. This is certainly the case when it comes to retail shopping centres. The tenant may wish to be located in proximity to other tenants with certain customer profiles and success.

Lease Negotiation Conclusion

These are some of the main aspects of lease negotiation when working with a franchise tenant. As a leasing executive, you can do very well in this market segment.

Take time to understand the franchise groups and their requirements.  Over time you can establish good working relationships and negotiate a number of lease deals with the same tenant type or franchise group.