Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / Franchisees Who Win at Lease Audits
Transcript
- Lucas: So, Luna, I was reading through a franchisee forum last night, and someone mentioned they'd just recovered forty-eight thousand dollars from a lease audit. Not from a lawsuit or a big renegotiation, just from going through their lease line by line. Luna: Forty-eight thousand? That's not pocket change. How did they even find that much money buried in a lease? Lucas: Well, that's what we're digging into today. Lease audits are one of those things that most franchisees never think about until it's too late. But when you actually look at what you're paying for, there's often a gap between what the landlord charges and what the lease actually allows. Luna: So it's not about the base rent, right? It's more about the extras. Lucas: Exactly. The big one is CAM — common area maintenance. That covers things like parking lot lighting, landscaping, snow removal, sometimes even the property manager's salary. The lease will have a clause that says you pay your proportional share of these costs, but how that's calculated can be vague. And landlords sometimes include expenses that aren't directly related to maintaining the common areas. Luna: Like what? Give me a real example. Lucas: So, a franchisee I spoke with — let's call him Dave — runs three quick-service restaurant units in a suburban area. When he audited his CAM charges, he found that the landlord was including capital improvements, like repaving the parking lot, which the lease said should be amortized over the useful life, not charged in one year. He also found that the square footage used to calculate his proportional share included a vacant store that had been empty for two years. Luna: Wait, so he was paying for space that no one was using? That seems like something you'd catch just by looking at the bill. Lucas: You'd think so, but here's the thing: these charges are buried in an annual reconciliation statement that's often pages long. Most franchisees just see the total and pay it. Dave only decided to audit because he noticed his rent seemed to creep up every year without explanation. Luna: So he hired someone to do the audit, or did he do it himself? Lucas: He did a first pass himself, using a checklist from his franchise's real estate department. That's where he found the empty store issue. But for the deeper dive, he brought in a lease audit specialist on a contingency basis — they take a cut of whatever they recover. That's how he found the capital improvement issue. Luna: Contingency, so no upfront cost. That's smart. But how do you even know if you have a case? Is there a rule of thumb? Lucas: The general signal is if your CAM charges have gone up more than a few percent year-over-year without a clear reason, that's a red flag. Also, if your lease has an audit clause — and most do — it usually specifies a time window, like twelve to twenty-four months, during which you can dispute charges. After that, you're typically barred from recovering anything. Luna: So if you're past that window, you're out of luck? Lucas: Not entirely. You might not be able to recover past overpayments, but you can still use the audit findings to negotiate better terms going forward. And that's actually where Dave's story gets interesting — he used the audit results to negotiate a reduction in his CAM cap for the next lease term. Luna: So it's not just about getting money back, it's about preventing future losses. Lucas: Right. And that's the mindset shift. A lease audit is not an aggressive act — it's just due diligence. In fact, the best time to do an audit is actually before you sign a renewal, because that's when you have the most leverage. Luna: Before we get deeper into that, I want to step back for a second. We've been talking about audits as a way to recover cash, but honestly, if this episode helps even one franchisee save money on their lease, we've done our job. Lucas: Yeah, and if today's conversation moved your thinking forward in some way, that's the spirit behind the buy me a coffee link. It's the smallest possible ask — you can buy us a coffee at buy me a coffee dot com slash fexingo. Luna: That's right. Every little bit helps keep this show ad-free and independent. Lucas: And speaking of thinking forward — let's talk about what happens if you're in the middle of a lease term and you find overcharges. You're not necessarily looking to break the lease; you just want to correct the record. Luna: So you go to the landlord with your findings. How does that conversation usually go? Lucas: Most landlords are willing to work it out if you come with documentation. In Dave's case, the landlord agreed to credit the overcharges against future rent, rather than cutting a check. That's actually a win-win — the landlord preserves cash flow, and the franchisee gets immediate relief on their monthly obligations. Luna: It seems like the key is having a lease that allows for an audit in the first place. Is that something franchisees should negotiate upfront? Lucas: Absolutely. If you're signing a new lease, you want an audit clause that explicitly gives you the right to review the landlord's books — usually through an independent third party — and a provision that any overcharges found will be refunded or credited. Some landlords will push back, but it's a standard request in commercial real estate. Luna: And if the landlord refuses? Is that a red flag? Lucas: I'd say it's a yellow flag. It doesn't necessarily mean they're hiding something, but it could indicate they're not confident in their own accounting. You might want to think twice before signing a lease where the landlord won't agree to a basic audit clause. Luna: That makes sense. Now, what about the franchise system itself? Do some franchises offer support on lease audits? Lucas: Many do. In fact, a lot of franchiseors have real estate departments that provide lease review checklists and even pre-approved vendors for audit services. Some go further and negotiate master lease terms that include standardized audit clauses, which makes it easier for individual franchisees. Luna: So the franchisee isn't alone in this. Lucas: No, but the initiative has to come from the franchisee. The franchisor isn't going to proactively audit every lease on behalf of their owners. It's on you to use the tools they provide. Luna: Let's talk about timing. Is there a best time to conduct a lease audit, aside from renewal? Lucas: If you're seeing your total occupancy costs — that's rent plus all the extras — creep up faster than your revenue, that's a signal to audit. Also, if you're planning any major renovation or expansion, that's a good time, because you might be able to incorporate audit findings into your budget negotiation. Luna: And what about the cost of the audit itself? If you hire someone on contingency, you're giving up a percentage. Is it worth it? Lucas: Typically, the specialist takes twenty to thirty percent of what they recover. So if you recover forty-eight thousand, you might pay twelve to fifteen thousand. Still leaves you with thirty-plus thousand in your pocket. And if they find nothing, you pay nothing. Luna: So it's a low-risk, high-reward proposition. Lucas: Low-risk in terms of cost, but there is a time investment. You need to gather your lease documents, your payment records, and any correspondence with the landlord. A good specialist will walk you through that, but you need to be organized. Luna: I imagine the biggest challenge is just getting started. Do you have any advice for a franchisee who's never done an audit? Lucas: Start with your lease. Read it carefully. Look for the section that defines chargeable costs — that's where you'll find the language about what can and cannot be included in your CAM fees. Then compare that to the annual reconciliation statement you get from the landlord. Highlight anything that seems off. Luna: That's a good first step. I know I'd be tempted to just look at the bottom line and move on. Lucas: And that's exactly why landlords get away with it. They're counting on you to be too busy running your business to notice. So the fact that you're even thinking about a lease audit puts you ahead of the curve. Luna: I love that. So, to wrap up, what's one thing you want listeners to take away from this? Lucas: That a lease audit is not an attack on your landlord — it's a routine check-up. It's like taking your car in for an oil change. You're not expecting the worst, but you'd rather know if something's wrong before it becomes a bigger problem. Luna: And if you've been paying too much for years, that's money you could have used to grow your business. Lucas: Exactly. So if you've never audited your lease, now might be the time. Especially with renewals coming up — that's your best leverage point. A few hours of work could save you thousands. Luna: And if you're listening and you've had a win with a lease audit, we'd love to hear about it. Maybe we'll feature your story in a future episode. Lucas: That's a great idea. Until next time, keep your eyes on the fine print.