Land Lease question
 

I was approached by a person who wants to buy a piece of property I own to build a Dunkin Donuts , Basking Robins. I dont want to sell the property and this person (through a third party) wanted to know if I wanted to do a land lease or partnership.
I dont have any intention of selling this property and might even consider building the structure and renting it too him if that works.
I might even consider a partnership on the business as long as I maintain the ownership of the land.
My question is, how do you price the rent.
I would think that DD has a formula for rental/property expenses.
Im meeting this person tonight to see what his thoughts are and who he is.

Any help or ideas where to research this would be greatly appreciated.

The "rent" depends upon the terms of the deal. Who is doing the construction? Who is responsible for the costs of construction? If you are merely leasing the land to this person and allowing him to build on it, then you would receive less rent than if you were to do the build yourself. Will the tenant have the option to purchase the property? If so, they should compensate you additionally for this right. Similarly, if they are given the right of first refusal to purchase, that too deserves additional compensation.

Dunkin Donuts is a huge national franchisor. They must first bless the location before they will allow someone to negotiate for its use. Check to see if DD has signed off on the location before you get ahead of yourself.

I will follow-up on the DD approval but on the surface it will not be a problem. The location should be near perfect thats why Im not willing to let it go.

I think I would want total control over any construction so Im thinking I would finance the construction and then rent the land and building back with no option to buy. A right of first refusal would be fine with the proper wording from my lawyer regarding market price + :doggy:
These are my initial thoughts with out talking to the other party, thing could change as I learn more about what he is looking for. It sounds like an interesting opportunity though.

How long would a lease like this typically run?

Tantrum,
I work for a very large retailer with over 4500 domestic locations. We have a number of properties in NJ, and if you like I could provide you with some comparable rents by address. Our stores range from 3000-4000 SQFT. PM me if you are interested.

If you are doing the construction, you will not do a land lease with them. You will merely do a standard retail lease for the use and possession of the property. DD will want a minimum of 10 years with two or more 5 year options. Can you tell I recently negotiated a lease with them?

In this situation you may want to consider a net lease, in this type of lease the lessee pays rent and parts or all of the property charges, suck as taxes, assesments, insurance, and maintenace. In a net lease you may also write in a clause to be paid on a percentage of the buisness' profits. They will hold possesory interest but you will still hold the ownership of the property and all remainder interest.

Will DD guarantee the lease, or is the franchisee the only person on the "hook"?

Good article here-

Land Sale/lease Article

DD will not guarantee the lease. The Landlord should get a personal guarantee from the tenant and the tenant's wife if appropriate. DD would most likely step in to help (not monetarily though) their franchisee if the store is a good location in the event that the tenant has problems. DD could revoke the franchise and/or help the suffering franchisee to sell to a new franchisee of DD. Their new concept is to seek out sites that have drive-through windows. If you can deliver that, you will get a deal with DD.

unless amended into the lease the lessee holds full liability, D.D. may guarantee through the lessee (not likely) but the lessee is the only responsible party. not sure if that answers your Q.

Thank you for the feedback
7 replies in under an hour
This board is a freak-show and I mean that in the in a very endearing way :p

NickOTeen; even if what you have doesnt seem like a very close match it will still help me and give me an idea of how this works or could work.

The agent who contacted me offered the idea of a possible Land Lease or Partnership after I told him I was not interested in an out-right sale. My idea was to develop the land to fit the tenant so I guess there is a few different ways to look at it. I was never very interested in partners but the DD franchise always interested me.
Ill post tomorrow on how the meeting goes and what the other parties interests are.
Thanks again.
Chris