Before committing to a franchise, here are Five Key Points to consider. This article will deal briefly with the view of a Landlord.
5 Key points to remember:
1. Landlords look at the covenant (financial strength). The stronger the covenant the less their risk. If your franchisor is offering a “corporate covenant” guaranteeing the lease, and payment of rents, the better your ability to secure a good location ahead of others looking at the same spot. If you are not offering a corporate covenant, the Landlord will usually require a security deposit, the amount will vary and your ability to secure a Triple A location, an end unit perhaps, will now be limited.
2. Landlords also look at the strength of the company (and its brand) and how many locations they have. The more recognizable the name is to a Landlord the greater their attraction to that tenant for their center.
3. Start up franchisees – new franchises with exciting new concepts, one you think will work, doesn’t usually translate well to a Landlord. Landlords often look at retail tenants with respect to their ability to satisfy their banker for financing purposes. The stronger the brand, the easier it is for the Landlord to make his case.
4. Your Financial Strength – while you may qualify financially to secure a franchise, the Landlord might have a different opinion, which could result in asking for you to commit personally to a lease. You need to be aware of your financial obligations to the Landlord.
5. The Lease – Many Landlords prefer to use their own lease document. Some franchises insist on their own lease document. Regardless, it is imperative that you retain a good retail real estate lawyer to assist and PROTECT you in the lease negotiation. Landlord leases can be onerous and have many caveats. You could be in over your head before you even open for business. Money spent on a good retail lawyer is a smart investment.
My next article will deal with the relationship between the franchisee, franchisor and their real estate site selection criteria.
By Gerry Lazar, Sales Representative, Top Cats Realty Inc. Brokerage Gerry Lazar has been a retail real estate sales representative since 1989 and has a reputation as a deal maker. Gerry will tell you he’s a Top Cat in this business because he has what it takes to get the deal done.
