Franchise occupancy cost review playbook

Franchise occupancy cost review playbook

Franchise occupancy costs jumped. The operator wants to know if the landlord bill is normal. The advisor needs a simple way to sort noise from real lease risk.

Occupancy cost means the full site cost. It includes base rent, CAM, taxes, insurance, and other NNN charges. A jump can come from sales decline, rent escalation, a one-time reconciliation, or a landlord billing issue. The first job is to split those causes.

Franchise occupancy cost review: A structured check of rent, CAM, tax, insurance, utility, and true-up costs across one or more franchise sites. The review compares actual site costs to lease terms, FDD assumptions, prior-year bills, and store-level sales context.

Start with the client question

Use the exact question the operator asked.

"My franchise occupancy costs jumped. Is this normal?"

Do not answer from the total bill. Break the bill into parts.

• Base rent
• Percentage rent, if used
• CAM reconciliation
• Real estate taxes
• Insurance
• Utilities
• One-time landlord charges
• Direct maintenance costs

Then compare each part to the prior year. A jump made of four small line increases is different from one large parking lot charge.

Use FDD Item 7 the right way

FDD Item 7 can help frame what the franchisee expected before opening. It is not the lease. It is not a CAM audit. It gives a cost expectation that may explain why the operator feels the bill is off.

Use it as context only.

Ask three questions.

1. What occupancy cost range did the franchisee expect at signing?
2. Which costs did the FDD estimate exclude or qualify?
3. Which current charges are driven by the landlord lease instead of the franchise model?

That keeps the advisor honest. The FDD helps explain the business problem. The lease controls the landlord billing question.

Build the location sort

For a multi-unit franchisee, rank sites before reviewing each lease. The highest-risk stores usually have one of these traits.

• Occupancy cost rose while sales were flat
• CAM rose faster than base rent
• A large repair appears in one year
• Management fee changed by rate or base
• Pro-rata share changed without an expansion
• Taxes or insurance jumped without support
• The landlord used a new property manager

Put the stores into three groups.

Green stores need no immediate review. Yellow stores need support. Red stores need lease-backed audit work.

Run the CAM screen

Once a site is yellow or red, check the CAM statement against the lease.

Look for capital projects first. Roof work, HVAC replacement, and parking lot repaving may be capital work. The lease decides whether those costs can pass through, and whether they must be amortized.

Check management fees next. The issue is often the base, not just the rate. Some landlords calculate a fee on a pool that already includes excluded costs.

Check pro-rata share after that. Multi-tenant centers can shift costs when vacant space, anchor space, or pad sites are handled badly in the denominator.

Check taxes and insurance last. These may be valid charges, but the client still needs support.

How to package the service

Sell the first step as a location sort, not a full audit. The client gets a ranked list of sites, the documents needed, and a decision on which locations deserve deeper review.

Then scope the deeper review for red sites. That keeps fees tied to value. It also avoids wasting time on locations where the bill is supported and the lease gives the landlord room.

For a broader advisor offer, pair this with the franchise cost reduction CAM audit guide. For field business coaches, use the occupancy cost coaching playbook.

Sources used

• FTC Franchise Rule compliance guide for the FDD disclosure frame.
• SBA guide to buying a franchise for franchise diligence context.
• IRS tangible property regulations for the repair versus capital improvement screen.
• IRS Publication 946 for depreciation and recovery-period context.

Where CAMAudit fits

CAMAudit fits after the location sort. The partner uses the sort to pick the right stores, then runs the lease and CAM statement for each red-site candidate. The output gives the partner lease-cited findings to review before the client meeting.

That keeps the advisor in control. CAMAudit is the branded engine behind the review, not the person making the client recommendation.

Frequently Asked Questions

What should a franchise advisor check when occupancy costs jump?

Separate base rent, CAM, taxes, insurance, utilities, and one-time true-up charges. Then compare the change to the lease, the prior-year statement, and the FDD cost assumptions.

Does FDD Item 7 prove the landlord overcharged a franchisee?

No. FDD Item 7 helps frame expected initial investment and cost assumptions. It does not decide whether a landlord billed CAM correctly under the lease.

What documents should the advisor request?

Request the lease, amendments, FDD cost assumptions, current and prior CAM reconciliations, landlord backup, and a location-by-location occupancy cost summary.

Which franchise locations should get reviewed first?

Start with stores where occupancy cost rose faster than sales, CAM jumped by line item, or the landlord added a large repair, management fee, tax, insurance, or reserve charge.

How can a partner use this as a client service?

The partner can sell an occupancy cost review that ranks locations, checks lease-backed CAM risk, and routes strong candidates into a branded CAM audit.