Can Your Franchise Agreement Be Negotiated?

Can Your Franchise Agreement Be Negotiated?

by | Mar 29, 2019 | Blog, For Franchisees

“Everything is negotiable. 
Whether or not the negotiation is easy is another thing.”
— Carrie Fisher

Carrie Fisher was right. Not only is everything negotiable, it’s also legal! Even when the franchisor’s salesperson sitting across the table from you says, “this franchisor will not negotiate your franchise agreement,” beg to differ

Negotiation is your right
Neither federal nor state franchise laws prohibit franchisors from negotiating franchise agreements with franchisees. So, when the franchisor’s salesperson says it is against the law to negotiate, they are…not telling the truth. Franchisors can always negotiate their franchise agreements and many do. But whether or not your franchisor will negotiate and to what extent, depends on many factors.

Negotiate details important to you
While some longstanding franchisors may take a very strong position against negotiating, that doesn’t mean that everything in their franchise agreement is necessarily written in stone. Even those franchisors may negotiate provisions which — while important to you, the franchisee — may not be a non-negotiable, deal-breaker to them. For example, franchise agreements often require franchisees to open their doors within a specified time period (say, within nine months of signing the franchise agreement). In some markets, the window specified may be unrealistic. Your franchisor may be agreeable to negotiating an extension to your opening deadline to 12 months or 18 months. But you won’t know what’s possible if you don’t ask.

Negotiate your market
When franchisors are looking to grow their system or seeking to enter a new market, they may very well agree to certain modifications to their franchise agreement.  Let’s say you are on vacation in Bull, Texas. You eat at Brews & Burgers, a fabulous burger and brewery franchise. You have a great meal and you think to yourself, this concept would be a huge hit in my city of Mytown, New York.  Mytown has no breweries. But it does have a university nearby. You believe that these factors make it highly likely that Brews & Burgers can be a huge success. So you reach out to the franchisor to inquire about available franchise opportunities only to discover that Brews and Burgers operates only in the states of Texas, Oklahoma, and Iowa.  

Nonetheless, the franchisor is interested in bringing the concept to the Northeast and agrees that Mytown, New York may be a good place to launch. However, the franchisor recognizes that since there are no Brews & Burgers in the Northeast, opening a brewpub there may be riskier than in its existing geographies. In the Northeast, the restaurant will have no brand recognition to build upon to attract customers when it first opens. Recognizing that your Mytown Brews & Burgers will require extra time to become known and profitable, the franchisor may be more willing to negotiate your franchise agreement to provide certain allowances to compensate for a slower growth trajectory.

Sometimes no means no
Of course, some franchisors are not willing to negotiate, and they may have valid reasons for refusing to budge. One reason might be that the franchisor simply wants to keep its franchise agreements uniform.  Uniform franchise agreements make it easier for the franchisor to manage enforcement.  Or, a franchisor may refuse to negotiate simply to keep other franchisees, who may not have negotiated as good a deal as yours, from becoming resentful.
One thing is certain though. No franchisor will modify their agreement unless you ask. But even if they refuse, the upside of your efforts to negotiate is that it will provide you with the opportunity to learn more about the franchisor’s management — the people with whom you are considering having a long-term franchise relationship.

Clear communication matters
Everything is negotiable before you sign on the dotted line. If you don’t ask for what you want, you’ve got no chance to get what you need. Ultimately, the devil is in every agreement’s details — whether you are thinking of buying a franchise or selling a franchise or other privately-held business or practice. Most issues can be addressed fairly early in the franchise/business selling/buying process, but only if you know those exposures exist. Protect yourself whether you are a buyer or seller. Consider retaining experienced franchise counsel to guide you through the franchise acquisition/disposition process. Still got questions? Feel free to email them to me, Julie Lusthaus at jl@lusthauslawpc.com  and let’s talk.

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