What is a Franchise Agreement Negotiation and How Can You Make it a Success?
A franchise agreement is a legally-binding document between a franchisor and franchisee. It gives the franchisee the right to use the franchisor’s business model, IP (intellectual property), and brand for a specific amount of time.
This agreement, which provides clarity on issues such as fees, rights, and duties, is sometimes thought of as prioritizing the franchisor. While the franchisor might not be willing to negotiate many terms in the agreement, there is still room for discussions.
By negotiating a franchise agreement, you can achieve the terms you want for running your business and ensure solid working relationships with the franchisor.
Read the rest of this article to explore key terms in franchise agreements, how to negotiate them, and when to consult with a lawyer for assistance with the process.
What are Key Terms in a Franchise Agreement?
A franchise agreement usually contains the following terms. Here’s why they’re important ahead of your negotiations.
- Terms. This section specifies how long the franchisee will be allowed to use the franchisor’s trademarks. It provides clarity on the rights of both parties.
- Payments. The franchisee needs to know how they will pay the franchisor for the right to use their trademarks. For example, this could take the form of ongoing payments or royalties to ensure that the franchisor is properly compensated for their brand, while preventing future disputes.
- Obligations. All mandatory training and guidelines need to be provided to ensure compliance and high standards.
- Development schedule. The franchisee has a certain amount of time in which to set up the business in a specified location. This section in the contract strives to meet all operational expectations and standards.
- Insurance. To protect against loss and liability, the insurance term in the agreement will clarify duties of both parties.
- Termination. A list of times or situations in which either party could end the contract must be included, as well as any consequences, to remove uncertainty.
- Dispute resolution. If disagreements arise between parties, this section will provide a method for resolving it, such as mediation to keep disputes out of court. This serves to maintain business relationships while avoiding costly litigation.
What are Tips to Negotiate a Franchise Agreement?
If you’re ready to negotiate a franchise agreement, there are some important things to bear in mind.
Ask About Support
As a franchisee, you should think about gaining additional support when you open your business. Some franchisors will be willing to offer you help in the form of personnel or training.
It helps to prepare a list of what you require to meet your business goals. Think about what’s important to you, such as support or monetary assistance with advertising costs.
Think About Defaults
If there are defaults, you usually have a chance to fix them. If you don’t do so within a certain amount of time, this could cause you to lose the franchise. Check what is said about this in your franchise agreement and negotiate the time you have while ensuring they’re reasonable.
Ask About Territory
Territory is one of the most negotiated terms in a franchise agreement. You should seek clarity on this term, such as if your exclusive or protected territory depends on reaching a certain amount of sales or if you can increase the territory size.
Speak to Other Franchisees
It can help you to figure out what’s negotiable with your franchisor by speaking to other franchisees. They will be able to explain specific changes they were able to negotiate, which should help you assess what is possible versus what you shouldn’t waste your time on.
Get Everything in Writing
If you successfully negotiate terms in the agreement, you should put it them writing so that you’re not relying on a verbal agreement. This will ensure both parties have accountability and it will prevent misunderstandings in the future.
Why is Franchise Agreement Negotiation Not Always Possible?
There are some important reasons why a franchisor might not be willing to negotiate. Knowing these can provide a better understanding of their situation.
- Fairness. If the franchisor has offered all their franchisees the same pricing and other terms, they might feel it’s not fair to allow one to negotiate with them.
- Legal issues. A franchisor has to stay legally compliant, which includes meeting all laws that demand that they disclose deals or terms they negotiate with parties. While this protects their franchisees, it can make compliance challenging if a franchisor is making use of different terms with different franchisees.
- Admin. If franchisee contracts vary a lot, this can create issues or complications with the franchise system.
Do You Need a Lawyer for a Franchise Agreement Negotiation?
You don’t always need to hire a lawyer to help you with negotiating a franchise agreement, especially if it’s clearly drafted and easy to understand. If it’s complex, confusing, or you’re unsure of the negotiation process, you should seek legal guidance.
A lawyer can help you in various ways throughout the process. This includes:
- Reviewing your contract for complex or unclear terms. This will help you to clarify your objectives during the negotiation.
- Noticing any risks in the contract that could put you at a disadvantage in future. They’ll then help you minimize your liabilities by formulating a negotiation strategy.
- They’ll explain your duties and financial responsibilities, such as royalties and ongoing payments.
- They’ll guide you on all trademark and brand guidelines, so that you don’t violate any rules that could result in legal trouble.
- They’ll negotiate with the other party on your behalf to avoid making any mistakes that result in you not getting the terms you want.
- They’ll protect your interests during negotiations, such as by guiding the discussion to focus on favorable payment or timeline terms.
- They’ll check for compliance with all local laws that could affect the agreement.
- They’ll draft all important documents with agreed-on changes so that you don’t rely on a verbal agreement.
Where Can You Find a Lawyer for a Franchise Agreement Negotiation?
If you seek legal guidance when negotiating your franchise agreement, you can hire a lawyer on ContractsCounsel. This platform, which is one of the largest online legal marketplaces, connects you with vetted lawyers who have the experience to help you through the process.
A lawyer will help you figure out what is negotiable in your franchise agreement, strengthen your case during discussions with the other party, and ensure you minimize your risks.
