In theory, since franchise agreements are contracts, they should be negotiable. The reality, however, is that most franchisors aren’t willing to compromise too much.
For the most part, franchising agreements are adhesion contracts, designed to limit negotiations. That may seem one-sided — many potential franchisees certainly think that is the case — but franchising attorneys routinely advise against making significant changes to franchise agreements.
Keeping the contract as written isn’t intended to be a power play. Franchisors have a valid legal and financial basis to refuse negotiations.
Why Franchisors Aren’t Usually Open to Negotiation
Franchisors may have a number of reasons to refuse negotiations, but for most, the following three issues are at the top of the list:
- Franchise system administration — When franchisees have different terms and provisions, doing business can be a nightmare. And the cost is higher, since every franchisee question will require a contract review.
- Legal requirements — Franchisors must disclose special terms or deals that are negotiated with individual parties, as full disclosure protects prospective franchisees. Complying with this legal requirement can be a burden, so franchisors are often unwilling to negotiate.
- Fairness — Should some franchisees get a better deal in their franchise agreements than others? Franchisors don’t think so.
Contract Terms that Might Be Negotiable
Franchisors may be willing to make changes to franchise agreements — but only if the changes have little to no impact on the consistency of the franchise system.
Franchise agreement terms that might be negotiable include:
The date when the new franchisee needs to have their business open and in operation
The amount of grand opening support provided by the franchisor
The amount of ongoing franchisor support during the early days of a new franchisee business
The amount of the standard transfer fee if the franchisee decides to sell
Franchise Agreement Negotiations
Franchisors should explain the reasons for uniformity in franchise agreements ahead of time to prospective franchisees — doing so can help prevent many questions about negotiations.
In addition, face-to-face negotiations with potential franchisees should be done with an attorney present. An attorney experienced in franchising and business law has the skills to keep the franchise system consistent.
In most cases, anyone who wants to become a franchisee will need to sign the franchising agreement that’s presented. Small contract changes may be achievable, but potential franchisees shouldn’t count on significant negotiations in franchise agreements.
The world of franchising can be difficult to navigate without an experienced attorney at your side. The Franchise & Business Law Group can answer all your questions and provide personalized, expert advice to strengthen and protect your franchise system.
The Franchise & Business Law Group attorneys can provide exceptional service and guidance through all your franchising-related legal issues. Contact our Salt Lake City, Utah, office and schedule a consultation to discuss your franchise agreements today.