Franchise Agreements Are Negotiable
The issue of whether or not franchise agreements are negotiable comes up often. The unequivocal answer is that "yes, franchise agreements are negotiable" and in the vast majority of franchise transactions, franchisees and their franchise lawyers do obtain negotiated changes to the franchise agreement.
How the Issue Typically Arises?
- You are evaluating a franchise opportunity;
- The franchisor discloses its FDD to you;
- You have discussions with the franchisor and the franchisor's sales team and possibly attend a discovery day;
- You decide that you are ready to move forward and the franchisor's sales representative tells you that they are very strict with their franchise agreements and that although you could have the FDD reviewed by a franchise lawyer that the franchisor does not negotiate or make changes to the franchise agreement;
- Some sales people may even tell you that, legally, the franchisor is not allowed to negotiate or change the franchise agreement.
As a prospective franchisee, once the issue arises, you question whether or not you should even engage a lawyer. Especially if you can't make any changes...
Legally Franchisees Can and Should Negotiate Changes to their Franchise Agreement
In the vast majority of franchise transactions, with the right representation, franchisee's negotiate and obtain structural modifications to their franchise agreements. The process itself involves negotiations with the franchisor and what ultimately will become a franchise agreement addendum. The law is that franchisors are allowed to modify their franchise agreements of the modification was requested by the franchisee and for the benefit of the franchisee. So, if someone tells you that a franchisor cant or wont modify their franchise agreement, you should know that they can and, more often than not, will modify their franchise agreement.
This does not mean that franchise agreement negotiations should be some open-ended negotiating process where you challenge and attempt to modify everything. As to certain franchise agreement provisions franchisor have very good reasons for not agreeing to any negotiated changes for the purpose of maintaining uniformity among its franchisees.
Franchise agreement provisions that are commonly negotiated, typically involve:
- Protected territories and their scope and size;
- Individual franchisee liability should the franchised business not succeed;
- Development rights and rights of first refusal;
- Transfers to family members;
- Remedies for curing a default;
- Renewal rights; and
- Non-compete obligations in special circumstances.
Franchise agreement provisions that are typically off the table and non-negotiable due to a franchisors valid decision to maintain uniformity among all franchisees:
- Initial franchise fee;
- Royalties and the royalty rate;
- Reporting obligations; and
- Compliance with franchisor's standards and specifications.
Learn more about our services for assisting franchisees and the steps to buying a franchise. Watch our video to learn more about why franchise agreements are negotiable.