Are franchise contracts negotiable?

Franchise agreements, by their very nature, are meant to be standard. These “adhesion contracts” are built so they can be used by one franchisor in business with many franchisees.

The franchisor has an incentive to keep the brand and product as uniform as possible, and that incentive goes all the way to the initial contract. Contract variations work against uniformity.

There’s also the additional incentive that a franchisor might have hundreds of franchisees. Any change of policy or product would require separate legal review for each contract – a possibility that is inimical to the smooth running of the franchise.

Is an adhesion contract fair?

Courts have ruled that adhesion contracts are fair as long as they are not deceptive, unconscionable or against public policy. Courts have ruled against such contracts if they sneak in unfair waivers or buried clauses.

Franchisors will likely not negotiate with you if you don’t want to sign their boilerplate contract. They are intended to be one-sided and you can walk away if you don’t want to go into business with the franchise.

Some experts there are several aspects of such a contract that, in some cases, may be negotiated:

  • Extra help from field support during your grand opening
  • Size of your protected territory
  • Right of first refusal or first notice if a franchise next to yours is up for sale
  • A reduced royalty if you can provide some franchise services such as training and site development
  • Right of the franchisor to buy if you put your location up for sale

The key to any negotiation with a franchisor is if the changes have little impact on the consistency of the overall operation.

What a negotiation might really mean

If your franchisor is open to negotiation, it might be a sign that this isn’t a franchise worth your money or effort. When you spend money to buy into a franchise, you are buying a brand and product. That brand and product needs to be uniform throughout the franchise.

If you are negotiating special agreements with the parent company, you can assume other franchisees are doing the same. Does that mean the experience a customer receives at a store two states away is the same as the one you are providing? If it is a different experience, will it send customers away – customers you need to pay your franchise fees.

Don’t sign any contract that isn’t in your best interest. But sometimes, a uniform agreement helps to protect you from the bad actions of other franchisees.

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