I recently attended the ABA’s Forum on Franchising this past week in cloudy San Diego. (Yes, that’s correct, cloudy). One of the more interesting sessions involved the Most Frequently Litigated Substantive Provisions in Franchise and Dealership Agreements by franchisee lawyer John Holland and franchisor lawyer Jonathan Solish. Numerous litigation topics were covered including choice of law provisions, integration clauses, performance requirements, territory issues, termination for cause, renewal and transfer issues and non-compete provision. But an interesting part of the discussion came from one of the franchisee lawyers in the audience that said he has been having success, at times, negotiating the personal guarantee provisions of a franchise agreement.
In almost every franchise agreement, the franchisor will ask the prospective franchisee to personally guarantee the obligations set forth in the agreement including royalty payments. Most franchisees hardly seem to bat an eye at these personal guarantees figuring there is no way the franchisor will concede on that provision. But at least according to one practitioner, making the request is worth the shot. Granted, a franchisor may not give in every time but it is certainly possible in certain instances. Examples of when a franchise might concede on the guarantee include where you already have an established business entity, perhaps if you want become a multi-unit franchisor or maybe you dealing with a start-up franchisor.
It is important to know that most franchise agreements are negotiable in some way. It’s sometimes tough to get concessions on the language but that should not prevent you from trying.