What you need to know as a landlord negotiating a commercial lease with a franchisee

| Jun 23, 2021 | Real estate transactions

Many franchisees spend quite a bit of time searching for the right commercial space for their new business venture. It often takes them up to a year to identify a place and negotiate lease terms.

Commercial leasing is significantly more flexible than the residential real estate process is, so one thing that you’ll want to prepare yourself for as a commercial landlord is negotiations. You may find it helpful to know what kind of things are typically requested to prepare yourself for these discussions.

Security deposits

Commercial landlords don’t generally have to request security deposits or personal guarantees of their tenants, but most do. You can expect your prospective franchisee tenant to want to keep their costs low. You can also expect your tenant to request any personal guaranty that they put up to decrease over time and expire at some point.

Terms and conditions

You and your prospective tenant have similar objectives, which are to minimize your liability and keep a watchful eye on your bottom line. You can expect your prospective tenant to want to negotiate the terms of your agreement, including the:

  • Monthly rent amount and related concessions
  • Length of the lease
  • Circumstances under which they can break the lease and the penalties associated with doing so.

The goal is to ultimately come up with a compromise that both parties can be happy with.

Many parties to commercial leasing contracts lose track of the fact that they have a lot of flexibility in drafting their contract. You’ll want to use that to your advantage when carrying out negotiations with prospective tenants.