Part Five
Our First Lease
Now that we found a location that everyone approved of, it was time to sign our franchise agreement and pay our franchise fee. You only have one year from the time you sign the agreement to find a location and get started. This is why they had us wait until we had a definite location before they had us sign. Once all of that was completed, it was time to negotiate a lease.
To learn a little more about franchise agreements, click here.
The owner of the building for our location was a large company, and they had their own standard lease. Our franchisor also had a standard lease they wanted all locations to use. So, we had to somehow negotiate a way to combine these two leases in a way that worked for everyone.
Negotiations
At that time, the franchisor leased the location, and the franchisee had to sign a sub-lease. They did this to prevent the franchisee from eventually turning the location into “Joe’s Sandwich Shop” or whatever. For this reason, and because we had no experience at this, our territory representative handled all the lease negotiations.
We were asked at different times if we were okay with different lease provisions. These were things like who would provide trash removal and who would pay for snow removal and so on. If we were ok with whatever the issue was, fine. If not, they went back and worked on it.
CAM Fees
“Common Area Maintenance” or “CAM” fees were something we had never heard of before. CAM fees are the costs the landlord incurs in maintaining the building and the common areas. They are divided among all tenants according to the size of their unit, and they are added to your monthly rent payment. These costs can include anything from snow removal and property taxes to what they call “administration fees”.
CAM fees were an area of concern with this landlord. He wanted a price per square foot that was very unreasonable. Possibly because the center was mostly empty, and they were tired of paying most of the costs.
It took quite a bit of negotiation, but we finally came to an agreement.
Landlords’ Work
The landlord was also a developer/contractor. We got them to agree to giving us what they call a “white box” which just means that all the walls are put up, drywalled and painted. They also included two full restrooms, and they agreed to cover part of our costs for plumbing and electrical work. We were able to use their sub-contractors. This made the entire process go more smoothly.
We had to cover the cost of all interior finish work and the remainder of the plumbing and electrical costs.
Signage
All the terms of the lease had been agreed upon and we were ready to move forward. However, the lease stated that our signage had to comply with local zoning codes. We were the second tenant in the center, and the first tenant had no sign, so there was no zoning code for this building. This was a large issue we had to resolve.
The village we were in was very opposed to commercial growth. They wanted to keep the small-town feel, and you can’t blame them for that. The problem was that their zoning codes regarding signage were a little vague and open to interpretation. This resulted in the zoning board members each wanting their own interpretation of what it should be and caused them to argue among themselves.
At first the zoning board told us we had to have black or red non-illuminated block letters that were only to be lit with a spotlight. This was not acceptable to our franchisor, who wanted an internally illuminated sign in their logo colors. We had to file an appeal.
The zoning board only meets once per month, so we had to wait another month for our appeal to be heard. We were again turned down. I don’t remember if they made any concessions or not, but I do remember we had to appeal again.
We went through the appeal process at least six or seven times. Resolving the signage issue took most of a year. The final agreement was that every tenant in the strip center could have whatever font or logo they wanted, but all the signs had to be red, and they had to be “halo” lit signs. This meant that no light could shine through the front of the letters, it had to shine out of the back creating a halo effect. It looked cool when it was finished.
Final Steps
The lease had already been sent to the franchisor. Once we had the signage approved by the village and the franchisor, they signed and executed the lease. We then signed and executed the sub-lease. I believe they gave us 120 days from the time we received building permits before we had to start paying rent. So, our objective was to get it done within 90 days so that we could be in business for about a month before we had to pay rent.
Our territory representative involved us every step of the way during this entire process. He advised us on things and let us know how most leases were structured. If there was something we weren’t happy with, he tried very hard to get it resolved to our satisfaction. He had quite a bit of experience at this since he had over thirty stores of his own at that time. I have to say he did a great job.
Key Insights
Be prepared to negotiate and compromise. Our landlord for this first lease was not the easiest to work with, but we got through it. Lucky for us we had a very experienced person working on it. If you are considering purchasing a franchise, you need to find out how much assistance you will receive in lease negotiations, especially if you are not experienced in this area.
Up Next
Training on how to run our sandwich shop!