Lease considerations for franchisees

08/06/2018 08:00 | Start a business

Leasing for franchisees

For most franchises, suitable premises are a prerequisite for opening up a new unit. If you can't find a property in a great location, that meets your criteria, and that you're happy to call home for the foreseeable future, the startup process is dead in the water. However, once you've located the right property, the next step is negotiating the lease. This can be an incredibly complex process that requires plenty of resources. It's also highly likely that you'll need to take advice from professional advisors in both the legal and real estate industries. Here, we take a look at some of the critical considerations that franchisees will have to make if their franchise investment is to come good.

Research your area

The first step in arranging the lease of any business property is extensive research. Your research should include factors such as transport links, regular footfall, and visibility. It's also vital that you perform some analysis into the demographics of the area. Are there a suitable number of potential customers in the vicinity? Are they close enough to ensure that your premises are their go-to location?

Typically, a franchise will assist you in both finding a suitable site and conducting tests relating to the surrounding population. Theyll have a good understanding of what constitutes a potential customer and whether your area has a sufficient supply of this type of individual. The property selection process also needs to take into consideration geographical variations in prices and local market trends.

Property agent partnerships

The vast majority of franchisees will partner with a property agent to find the ideal premises. Property agents usually have a unique insight into the local market and are also well connected to sellers, other agents, and businesses around the area. This informal network can prove incredibly useful in certain situations and may give you a competitive edge over other potential renters. In many cases, a well-connected property agent will hear about properties before they're placed on the market, allowing you to get in there first before anyone else has a chance.

Some franchises will have developed a strong relationship with a specific property agent and require you to use their services. This is because they fully understand the franchises requirements and know what properties work and which wont. Finally, if youre looking for a property agent, try and find one that has some experience of dealing with the franchise model, as this expertise is likely to prove useful in the long run.

Ensure you take legal advice

Throughout the entire franchise application and startup process, youre probably going to need to take a lot of legal advice. Considering the amount of documentation that needs to be read, understood, and completed, it shouldnt come as a surprise if you spend more time with your legal advisor than anyone else. Finding the right advisor will not only ensure that youre covered when it comes to future legal issues, but it may also save you money over time. If you choose to expand or become a franchisor yourself, your advisor is likely to offer competitive rates so that they are appointed the legal representative of your growing network. However, if you find yourself working with an advisor that doesnt seem capable of providing the support you need, dont be afraid to jump ship and find yourself someone that meets your requirements.

Legal structure of the lease

When negotiating the lease, there are many important legal factors to consider. For instance, should you sign the lease in a personal capacity or in the name of a limited company? While the former may prove the better option in some circumstances, the latter offers a cleaner, more straightforward way out of the arrangement should you want to sell or dispose of the lease. However, these types of legal question largely depend on your specific personal circumstances. Your legal advisor should be able to provide you with greater insight into what your options are and what decisions you should take to protect both the new franchise unit and yourself as a private individual.

Termination and break clauses

As with any legal contract, its incredibly important that you understand and agree to the circumstances in which the contract can be broken or terminated. Unfortunately, not all franchise units succeed. Consequently, you need to protect yourself against the possibility of things not going entirely to plan. An ideal property lease will limit the number of conditions you have to meet to break off the contract and walk away from the property. However, the owner of the property will also want to protect themselves against losing their tenant. This means that you have to walk a fine line between protecting your interests and meeting the owner's conditions. In most cases, a skilled legal advisor will be essential to finding this balance.

Hidden costs

Finally, franchisees need to be aware of the hidden costs associated with leasing a property. Though the actual leasehold is going to be your most significant expenditure, there are always going to be other costs. These may include investment in repairs, decoration, insurance, agents fees, stamp duty, and business rates. With this in mind, its vital that you draw up a comprehensive budget that factors in all of these considerations. Your business wont be able to operate until planning permission has been acquired and paid for, the property has been fitted out, and youve paid the deposit. Consequently, franchisees need to account for every single franchise cost relating to the property they can, to avoid any nasty surprises.

As you can see, there are many important factors to consider when leasing a business property for your franchise. While this list doesnt encompass every aspect of the process, it provides the basic building blocks from which you can begin to form a comprehensive plan for your property acquisition. As with all complex business processes, its going to be necessary to seek advice from a wide range of specialists and professionals. Consequently, one of the most important steps you can take is finding advisors that you trust to make a decision thats in your best interest.

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