Franchise agreements are the heartbeat of the franchise industry. They dictate the relationship between the franchisor and franchisee, outlining everything from branding and marketing guidelines to operational procedures and fees. Let’s be honest. These franchise agreements are VERY one-sided. No one denies it. So, it is not a surprise that many prospective franchisees ask, “Are franchise agreements really negotiable?” The answer is yes – in theory. But in reality, many franchisors won’t negotiate the franchise agreement, and today, we’ll explore why.
Consistency is Key
One of the cornerstones of the franchise industry is consistency. As a franchisor, your brand is your business, and every franchisee should operate with the same level of quality and professionalism that your customers have come to expect. That’s why most franchise agreements are designed to be as uniform as possible, covering everything from equipment, products, services to hiring practices. If you start opening up negotiations with individual franchisees, you risk diluting your brand’s consistency and reducing the value of your franchise system. In short, allowing franchise agreements to be highly negotiable could harm the overall franchise system, dissuading prospective franchisees from investing in your brand.
Franchisor’s Legal Obligations
Another reason franchisors often avoid negotiating the franchise agreement is due to the legal obligations they must fulfill. Franchisees must be provided with a franchise disclosure document that details all relevant information about the franchisor and the franchise system. Any important terms or amendments must also be included in the agreement. Allowing negotiations will only make the process more complex and costly, not to mention increase the risk of improper disclosure. This is why the vast majority of franchisors stick to standardized agreements to save time and minimize risk. But be clear, it is NOT illegal for a franchisor to negotiate a franchise agreement. Instead, they are CHOOSING not to negotiate.
Risk of Losing Control
In addition to the reasons above, many franchisors don’t negotiate the franchise agreement because they want to maintain control over their brand. If too many franchisees are allowed to change the agreement, franchisors are no longer in control of their system, which can lead to a host of problems like inconsistency in operations, disputes over royalties and fees, and even legal trouble. By having a fixed franchise agreement, franchisors are more easily able to manage their system and keep the brand intact.
Non-Negotiable Provisions vs Negotiable Provisions
Another thing to keep in mind though is that not all franchisees are the same. While most franchisors won’t negotiate the franchise agreement as a whole, there are many provisions that can be customized to fit the needs of individual franchisees. For example, the size and scope of territories are often negotiated. And especially in multi-unit franchise purchases, you may be able to get discounts on the franchisee fees, royalty fees or perhaps the time frames to achieve certain standards. Marketing strategies and requirements could also vary depending on the franchisee. In this sense, some franchisors understand that in order to make a deal it is important to treat the franchise agreement not so much a rigid contract, but as a tool that can be adjusted and customized to meet the needs of the franchisees while still holding true to the franchisor’s underlying philosophy.
So, are franchise agreements really negotiable? While they are legally negotiable, many franchisors opt to maintain consistency, legal compliance, and control over their brands by sticking to standardized agreements. However, unique deals are still possible, and there are provisions that may be negotiable depending upon the circumstances. Ultimately, the best thing to do when considering a franchise agreement is to thoroughly examine the provisions and negotiate where you can while keeping in mind the overall structure and philosophy of the brand.