“Your Landlord May be Your Best Source of Financing”		«BACK
	by Dennis L. Monroe
	from Franchise Times, June-July 2002 Issue

Here are ten ways to use the landlord tenant relationship to grow your business. Obviously, all of these suggestions are site related but can, in effect, provide the franchisee (or in the case of corporate stores, the franchisor), with available funds to open new stores.

1. When proceeding with a build-to-suit lease, look to the landlord to include in the rent factor calculation more than just the cost of the four walls. If possible, include fixtures that do not fall within the equipment-financing package. Fixtures should include almost anything that is attached to the leasehold interest and would have no value upon termination of the lease.

2. In addition, the rent factor calculation should include all soft costs. This will reduce upfront out-of-pocket costs. Examples of soft costs are architectural fees, legal expenses and site development.

3. In order to develop working capital for the business, seek from the landlord an initial rent abatement of both the base rent and any other common occupancy costs. This abatement may provide for a quick accumulation of cash.

4. Ask the landlord to provide funds for pre-opening promotional activities. A successful store is in the landlord's best interest, and the landlord may agree, as part of the capital investment in the site, to provide for promotional expenses to increase the likelihood for the site's success.

5. Consider asking the landlord to participate as an equity investor. The landlord may want to participate in the business up side and thus be a more receptive landlord to future needs.

6. As sales increase, appeal to every landlord's desire to participate in upside potential, providing the landlord with percentage rents in lieu of a higher base rent. This percentage rent approach may, in effect, be a hedge for business downturns.

7. A lease should provide flexibility in the assignment and subletting provisions. Include the right to freely assign to a franchisee of the same concept. This right will increase the marketability of the property and decrease the amount of time needed to accomplish a sale. Landlords are generally amenable to this assignment right, which may preserve the value of the original leaseholds for the landlord.

8. Always look to your landlord as a source of funds for remodel expenses. It is virtually impossible for the tenant to finance remodels, particularly if there is underlying debt. The landlord is clearly the best if not the only source of remodeling dollars. Leasehold financing is not cheap so provide the landlord with the proper rate of return as an incentive (such as 12%-14%).

9. The landlord should also pay for costs to make the property code compliant, free of asbestos, lead, mold, and/or bringing utilities up-to-date (especially the HVAC). The landlord will be more inclined to pay for work not specific to your business but work that will add value or life to the building even if you are no longer the tenant.

10. Ask the landlord for assistance with your bank. If the landlord is unable to provide leasehold financing, possibly the landlord can be convinced he may benefit by providing some type of leasehold mortgage right to the lender or even a limited

In summary, there are a number of ways landlords can participate in your growth. Anxious for good tenants, landlords are willing to consider creative terms and conditions to occupy their properties. In many cases, they have available to them financing capital sources that the average franchisee or concept owner does not have. Talk to your landlord and know your options.