The #1 Lease Negotiation & Site Selection Mistake

The #1 Lease Negotiation & Site Selection Mistake

Every franchisee has one primary goal:  to operate a successful business.  They can’t actually do that until their location opens.

Leases are complicated and create tremendous financial exposure.  Finding the best properties and negotiating the best terms are two of the most important tasks that any business owner undertakes because of the far-reaching and long-lasting ramifications.

While there are a number of key things to do right when negotiating leases, far and away one thing stands out as the #1 lease negotiation and site selection mistake that business owners make:  NOT ALLOWING ENOUGH TIME!

It takes TIME to research the market and qualify all the possible sites or facility choices, then tour the properties which seem most interesting, and then compare them carefully. While timeframes vary by market, the normal time to do just this step is about a month, especially if you intend to allow time to hear back from Brokers and Owners on “unlisted” properties: those properties where a Tenant is in place, but could move out (or be moved out) if a replacement occupant is found.  Consider, too, the supply and demand factors that play a role with restaurant and retail locations.  Even then, these tasks are only the tip of the “time drain” iceberg.  Other tasks need to be factored into the site selection time-line.

Negotiations

Typically done with Letters Of Intent (LOIs) or Requests For Proposal (RFPs), negotiations with the Landlord can span weeks or even months if the landlord is a big company with a real estate committee that meets once a week.  Terms are battered back and forth like a tennis ball.  Perhaps bids need to be obtained for various items before either the Landlord or the Tenant will agree to certain work.  It is not unusual for things to seem to drag on forever.

Preparation of the Lease

Once the financial terms are agreed upon, a new round of negotiations commences: the principals, brokers and attorneys need to battle back and forth over the wording of the lease, and the “devilish-details” can easily bring up new issues of disagreement that need resolution.  This can easily take weeks.

Renovations

Once the lease is signed the premises often needs finishing or renovating, which can add additional months.  Rooms are never the right size, and even when they are, you may want a different style of floor plan.  If it’s an open floor plan, YOU want private offices, or vice versa.  Happens all the time!  I have seen offices installed exactly the way they used to be – before the most recent tenant ripped everything out to make an open floor plan.

Permits

Before renovations can begin, building permits must be obtained. This will take additional weeks – perhaps much longer if the municipality is “backed up”, and don’t forget it is common for plans to be rejected for one reason or another and require revisions, and then resubmission.

Architectural Plans

Need building permits? Then you need architectural plans! How busy is the architect and how detailed are the drawings?  This can easily take one to two months.  If the architect is busy it may be a month before he/she can START the work.

Bottom Line

Unless existing facilities can be found with the right floor plan and features, the process can easily take 9 months to a year – horror stories abound in the industry of it taking even longer.  Depending on the size and complexity of the transaction, six months to a year is a reasonable time frame to use when looking for new locations – and longer is necessary (perhaps another six months) if you will be building from the ground up.

The timeframe above assumes that experienced planners have been retained to guide the process.  Their expertise plays a significant role in proactively averting problems that might otherwise lead to unforeseen delays.

This article was contributed to the National Franchise Institute by Craig Melby with LeaseSmart    (561) 886-8645

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