If you’re planning to open a brick-and-mortar franchise, one of your first, and most important, steps will be navigating the franchise lease negotiation process. Your lease will have a direct impact on your startup costs, long-term profitability, and even your ability to sell the business down the line.
For franchisees, negotiating a lease isn’t just about finding a location—it’s about structuring a franchise lease agreement that aligns with the franchise term, protects your investment, and positions your business for success.
Unlike residential leases, commercial rental agreements are driven by market dynamics and landlord expectations, not what a tenant can afford. That said, commercial leases are negotiable, and with the right preparation and guidance, you can secure favourable terms.
Lease vs. Rental Agreement – What’s the Difference?
When it comes to securing a physical location for your franchise, it’s important to understand the difference between a lease and a rental agreement. While these terms are often used interchangeably, they have distinct legal and practical implications.
- Lease agreements are typically long-term contracts (often 5 to 10 years) that outline the terms of occupancy for a set period. These contracts are legally binding and offer both the landlord and tenant a sense of stability. For franchisees, a lease agreement is usually the standard, as it aligns with the long-term nature of a franchise commitment.
- Rental agreements, on the other hand, are often short-term (month-to-month) and more flexible. While this may seem appealing, the lack of stability can pose serious risks for franchisees, who need a reliable space to build their business over time.
In franchising, a lease is generally preferred and often required by the franchisor. Not only does it support the operational timeline laid out in the franchise agreement, it also helps avoid disruptions due to unexpected changes in tenancy.
Additional FAQs About Negotiating Franchise Lease Agreements
Negotiating a franchise lease agreement is one of the most important steps in securing your location and setting your business up for success. Here, we answer key questions that franchisees commonly ask when reviewing commercial rental agreements.
#1 – How Long Are Commercial Leases for Franchisees?
Landlords prefer longer leases to reduce turnover. Many franchise lease agreements span five to ten years, matching the term of the franchise agreement.
#2 – Can I Use the Lease Term to Negotiate Better Rent?
Yes. A longer lease shows commitment and can be leveraged to negotiate better rent or lease incentives, especially in competitive markets.
#3 – Does the Lease Timing Need to Match My Franchise Agreement?
Absolutely. Make sure your lease begins before—or at least aligns with—your franchise agreement start date. Mismatched timelines can delay your opening.
#4 – How Do I Know If the Rent Is Fair?
Compare your rate to similar tenants in the property. Keep in mind rent can vary due to:
- Unit size
- Location in the plaza
- Length of lease
- Brand strength (e.g., independent vs. national franchise)
#5 – Can a High Rental Rate Affect My Exit Strategy?
Yes. If your rent is too high, future buyers may walk away from the deal. Choose a location and lease terms that appeal to successors.
#6 – What Should I Look for When Reviewing Lease Terms?
Understanding these terms will strengthen your position during franchise lease negotiations:
- Tenant allowance and/or free rent – Landlords may offer funds to help with build-out costs or grant rent-free months to offset startup expenses.
- Operating costs – Common Area Maintenance (CAM) fees cover shared expenses like maintenance and utilities—understand what’s included.
- Work to be done list – Clarify which improvements (e.g., HVAC, signage, ADA compliance) the landlord will handle before move-in.
- Lease deposit – Usually required upfront—know how much, what it covers, and when it’s refundable.
- Conditions – These are deal-breakers or contingencies, like securing permits or franchise approval, that must be met for the lease to take effect.
- Personal Guarantees – You may be personally liable for rent if the business fails – try negotiating limits or expiration terms. For further reading: 8 Types of Guarantees in Commercial Leases
- Termination Rights – Look for early exit options like subleasing, assignment, or termination clauses in case plans change. For further reading: Things to Consider Before Terminating a Franchise Agreement
Ready to Open a Franchise? Let’s Talk.
Before you sign any commercial lease agreement, you’ll need a well-developed business plan and a clear understanding of your financial projections. The good news? You don’t have to do this alone.
At FranNet, we help aspiring entrepreneurs navigate every step of the franchise journey – at no cost to you. Get expert guidance from a franchise consultant. Schedule a free consultation today and start building your business with confidence.