The Importance of Time, Timelines, and Timing with Your Commercial Lease – For Franchise Tenants
As we emphasize in our new book, Negotiating Commercial Leases & Renewals FOR DUMMIES, the leasing process is not a simple task. Considering the number of steps involved and potential hurdles you may face, property planning and allowing for ample time can save you aggravation and - more importantly – money.
One common mistake that commercial franchise tenants can make is agreeing to terms too quickly with the real estate agent. We routinely hear from frustrated tenants who signed too hastily and realize that, after the fact, they may have made a mistake. While they do good work, agents work for the commercial landlord (rather than the tenant) and they will often push a prospective tenant to lease a unit that may not be the best choice (it may be too large or too expensive). It is of little importance to the agent about the long-term success of the commercial tenant – the agent’s motivation will often be a promised commission from the landlord (and that commission will typically increase when the tenant leases more commercial space and leases for more years). Often you will get a call from the agent saying that someone else is looking at the space that you looked at last week so you had better hurry and sign an offer to lease. Don’t let things like that sway you … go your own speed and get it done right.
As a franchise tenant, you will also want to devote your time to doing what you enjoy and what is best for your business. Smart franchisees will often realize that they cannot accomplish everything that needs to be done, so they will hire outside professionals to help them (e.g. a lawyer or an accountant). Considering the amount of work involved with your own commercial lease, it can be very worthwhile for franchisees to use a professional lease consultant to help ensure that they get a better – and fairer – lease deal with the landlord. For the best results, everything that needs to be done before signing a lease can easily take between 20 to 40 hours … will you have this kind of time to spare?
Moving from time to timelines, scour all documents for deadlines and note these conspicuously. It may be possible to adjust these deadlines depending on the circumstances. You may find that some steps are beyond your control (e.g. getting financing in order or having a contractor inspect the commercial space) and you will need more time to get everything in order. While you could keep extending your condition periods by several days with your landlord, it is often better to simply ask for a longer condition period (perhaps 20 or 30 days) to ensure everything can be done.
While you may be just starting out as a new franchisee, remember that timing will play a vital part when your lease renewal comes due. It is not unrealistic for a franchise tenant to begin their lease renewal process 12 – 15 months prior to their lease expiration date. More precisely, look at your renewal-option clause. If this says your cutoff date for exercising your lease-renewal is six months before your lease expires, you would need to start the renewal process six months before that – or a total of 12 months in advance.
Remember that franchise tenants should make sure that their lease term matches their franchise term to avoid issues later with the lease running out too soon. This happens when the start date of the franchise agreement is prior to the start date of the lease agreement – which may be several months later, when the franchise business actually opens.
Pay attention to your own renewal option cutoff deadline and react accordingly. While you may have intended to stay leasing in your current location, your landlord may have other plans (your landlord may have found a replacement tenant to take over your space and may increase your rent dramatically to effectively nudge you to move out and vacate the space). In this case, isn’t it better to know this bad news ahead of time? This isn’t always the case; however, it is something for franchise tenants to think about.
Timing can also be a factor if you don’t have a renewal option and want to stay where you are currently leasing. If you don’t show any interest in moving, your landlord can take advantage of this situation (by increasing your monthly rent). And, if you wait too long before approaching your landlord, you will have less time available to you to move, if necessary.
For a copy of our free CD, Leasing Do’s & Don’ts for Franchise Tenants, please e-mail your request to JeffGrandfield@TheLeaseCoach.com.
Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.