You have decided to buy a franchise. All that is left is to sign the franchise agreement and pay your initial franchise fee, and then you will officially own your own business. So, is it worth it to try to negotiate? Or, is it safe to assume that the franchise agreement is being offered on a “take it or leave it” basis?
Unfortunately, over the past several decades, franchisors have honed the art of drafting one-sided franchise agreements. At the same time, franchise salespeople have come up with myriad ways to convince franchise candidates that negotiating is unnecessary. The truth is, if you are thinking about buying a franchise, it is strongly in your best interests to have the franchise agreement reviewed by an attorney, and most quality franchisors will expect you to request certain changes.
Requesting Reasonable Modifications to Your Franchise Agreement
So, the question then becomes, “What changes can I reasonably expect my franchisor to accept?” While there is no magic formula and nothing is ever guaranteed, some of the franchise agreement provisions that are most likely to be on the table include:
1. Initial Term
Whether the initial term of the franchise agreement is too short or too long, this is a provision of the franchise agreement that often merits careful consideration. You want to make sure that you have enough time to recoup your investment, but you also want to avoid being locked in for too long if the business simply isn’t profitable. If you can substantiate a term of years that is reasonable to both parties, this can be an important and successful point of negotiation.
Sometimes, franchisors (or, perhaps more accurately, franchisors’ attorneys) ask for more than they really need. One franchise agreement provision where this often particularly stands out is the non-competition covenant. While your franchisor may have a legitimate interest in preventing you from using what you learned as a franchisee to operate a competing business post-termination, you should not be prohibited from using your prior knowledge or engaging in a business that is not truly competitive with the franchise system.
3. “Cure” Rights
In the “Termination” section of your franchise agreement, you will likely find a laundry list of acts and omissions that justify termination of your franchise. While some of these “defaults” may be subject to cure (i.e. a 30-day period to pay past-due royalties), many of them probably are not. By negotiating reasonable cure rights into your agreement, you may be able to stave off termination in the event of an unintentional and remediable default.
Of course, these are just three of numerous provisions in a typical franchise agreement. From ambiguous language to overly one-sided terms, and from industry-specific considerations to factors that are unique to your individual circumstances, virtually all provisions of a franchise agreement can be subject to negotiation given the right set of circumstances. If you have questions and would like to speak with an attorney, we encourage you to contact us for a free and confidential consultation.
Request a Free and Confidential Consultation
To speak with 30-year franchise attorney Jeffrey M. Goldstein about negotiating the terms of your franchise agreement, please call 202-293-3947 or contact us online. We will schedule your initial consultation as soon as possible.