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

Very interesting....what happens if they build it on your property, go under and there is a lein on the building? who owes, and can they put a lein on your property?

I dont know how that works.
These are the reasons I think like this "I would want total control over any construction so Im thinking I would finance the construction". I also dont want someone building a half azzed structure that looks cheap and has no value when they are done with it.

Too Old;
Is there anyway to inject myself into the franchise agreement. Could I have him assign the franchise as collateral or is there a process that I need to go through with DD in case he defaults?

How do you personally view DD as a franchise?

hey chris,


call me on my cell, my father has done a lot of this stuff with his franchisee's who opened up his business in other cities, he also has an atty. who just deals with this stuff, you know he'd be happy to make an intro for ya or share any info....also, D&D is the last thing guys like us need!!! you should be leaseing to a salad bar!!!!!!!!!hahahah.....i couldn't resist....The doughnuts that is!!!!!!!Free Dagnuts!!!!!!!!!

Have you thought about becoming a DD franchisee on that piece of property buy-passing the other guy? Just a thought.

First off I thank you guy's for your suggestions and support.
I met with the realtor and the DD owner last week and I learned alot but its not going to happen with this particular owner.
The owner is very well established with DD and has several locations personally and other members of his familly own as well. He want to own the property or have a very sweat lease deal with an option to buy. Since Im unwilling to sell it leaves us at a stalemate. He has agreed that my location would be the best possible choice for a francise like DD/McD's/BK ect and he will have to build two locations to get the coverage he would have with mine.

So....Im going to look into possibly talking to other franchises and seeing if there is any interest.

Thanks again for the comments

Chris,
Do they have Atkins approved donuts??

I dont know but I did see that the Krispy Creme's where certified Kosher at the corner store. :crazy:

Get a good commercial lease based on marketable value of the land let them defray costs of building and fit-up. After 5 or 10 years you'll own it if they don't renew. You might want to tie a portion of the lease to the revenues but I would steer clear of having anything to do with that business.