Negotiating a Franchise Agreement
By Michael J. Childs
When I was selling AirChek® and DIGIKIDS® franchises, prospective franchisees would sometimes ask that I change a requirement or provision in the franchise agreement.
Before I got into the reasons for the requirement, I always asked if they wanted me to remove or change it for all franchisees.
After thinking about it, this was almost always met with a no. Why? They realized that they wanted other franchisees in the system to follow the very requirement they were asking me to remove which, of course, didn't make sense.
Franchise agreements are technically an agreement between you and the franchisor. But unlike other single party agreements, theyt affect you, the franchisor and all the other franchisees in the system. This is why it is always better to use a franchise attorney (one whose primary practice is franchising) to review your agreement.
With a well thought out franchise system, things you are required to do in the contract are there to protect everyone, including you. Some are there to assure a minimum level of profit for the franchisor.
The requirements can sometimes seem one-sided or harsh, and this is probably obvious, but you want your fellow franchisees to follow the rules (as they do you) and your franchisor to stay in business.
That’s not to say there aren't things that might be unfair or impossible to comply with, sometimes there are. If you can’t get them changed or explained better in an addendum, you probably want to move on.
Be careful though if a franchisor is willing to make changes that affect the integrity of the entire system or worse, dilute the value of existing franchise agreements such as a reduced initial franchise fee or “2 for 1” deal.
New or startup franchise systems are another story.
If you are thinking about being one of the first in a system, you will probably want some concessions to offset the higher risk. Larger territories, lower royalties, term and renewal provisions are just a few of the items that are negotiable.