In commercial and retail property today, franchise type tenants offer a real advantage to the landlord’s owning the investment properties. These franchise groups or tenants provide an established business model and in many respects proven tenants that can operate a business successfully. When it comes to investment property performance, this is a very good thing. Great tenants help every property perform to income and occupancy expectations.
Every franchise business or brand will have a specific business model. They will have certain needs regards occupancy that will need to be satisfied to make a lease negotiation work.
As a leasing executive, you can do very well in lease commissions from working with a number 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.
Here are some ideas to start a checklist of tenant requirements when working with this type of business tenant.
- They will have certain terms and conditions that will apply to leasing commercial or retail premises. Generally they will have a standard lease that supports those requirements. Ask for a copy of the standard lease that they use when it comes to 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.
- The locational requirements will be well defined and substantial for a franchise business. Seek details of exactly what they are looking for when it comes to short listing potential premises and targeting ideal locations. Improvements, services, amenities are all part of property choice and selection.
- 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.
- The franchise business will understand their customer base better than you. They will assess the strength of the 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.
- 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.
- The lease term as a number of 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 will need to reflect that time frame so the tenant can operate within their business agreement. The business agreement is also geared to the financing of the business, so everything is linked to the success of the tenant.
- The rental escalations in a lease will be set by the initial starting rent and the rent review profile. Most tenants like to understand that they have some control over the rental escalation process and that it is in keeping with the expectations of the local area business growth. You can mix and match the rent review types to make the rent structure work for the tenants and the landlord.
- Branding of the premises and the tenancy will need to be suitably flexible to allow the franchise group to establish their brand. The lease document should reflect signage agreements and approval processes to protect the premises from excessive signage and yet give the tenant the necessary flexibility for correct branding.
- 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 of with other tenants of certain customer profiles and success.
These are some of the main aspects of lease negotiation when it comes to working with a franchise tenant. You can do very well as a leasing executive working with this segment of the leasing market.
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.