“We don’t negotiate our franchise agreement.” If you have heard this from a franchisor’s sales representative, you are not alone. Many sales reps tell candidates that their franchise agreements are non-negotiable, and while some franchisors simply refuse to negotiate, more often this is a sales tactic designed to get candidates to sign on the dotted line.
To be clear, there is nothing anywhere that says franchise agreements are non-negotiable. In fact, if anything, consumer protection laws favor prospective franchisees’ right to negotiate. While some franchisors may choose not to negotiate as a matter of corporate policy, this is a decision that they make to protect themselves and their heavily one-sided franchise agreements.
Which Franchise Agreement Terms Can (and Should) You Negotiate?
But, while franchise agreements are negotiable, prospective franchisees should not expect to negotiate all of the terms put in front of them. Instead, prospective franchisees need to be selective, and they need to focus on the terms that both (i) present the biggest legal and financial risks and (ii) their franchisor is most likely to be willing to negotiate. In general, franchisors will not be willing to negotiate terms such as:
- Royalty rates
- Marketing fund contributions
- Confidentiality obligations
- Intellectual property rights
- Jurisdiction and venue
However, oftentimes prospective franchisees will be able to negotiate reasonable protections regarding issues such as:
- Duration of the initial term
- Territory definition
- Post-termination non-competition covenants (i.e., a limitation on the duration or scope)
- Cure rights for certain defaults
- Indemnification obligations for liabilities beyond your control
Both of these lists provide examples only. Franchise agreements are complex contracts, and they contain numerous complicated—and important—legal provisions. All prospective franchisees need to ensure that they have a comprehensive understanding of their franchise agreement, and they should hire a lawyer to review their franchise agreement on their behalf. An experienced franchise lawyer will be able to help you understand which terms make sense to negotiate—including perhaps terms that are simply unclear and need clarification for both parties’ benefit.
How Should You Negotiate Your Franchise Agreement?
Let’s say you need to negotiate some of the terms of your franchise agreement (which will most likely be the case). How should you approach this with your franchisor?
Negotiating a franchise agreement requires an informed and strategic approach. Generally, we recommend either of the following:
- Have Your Lawyer Prepare an Addendum – One option is to have your lawyer prepare an addendum that you can submit to your franchisor. The franchisor’s lawyers should then review the addendum and propose any requested changes.
- Have Your Lawyer Negotiate On Your Behalf – Another option is to have your lawyer negotiate on your behalf. An experienced lawyer will be able to argue your position effectively without creating unnecessary adversity.
Contact Goldstein Law Firm About Your Franchise Opportunity
Lawyer Jeffrey M. Goldstein brings more than 30 years of relevant experience to reviewing and negotiating franchise agreements for prospective franchisees. If you are thinking about buying a franchise, you can call 202-293-3947 or contact us online to get started with a free and confidential consultation.