Becoming a franchisee is an exciting but significant decision. One of the most important steps in this journey is negotiating the terms of your franchise agreement. This contract will govern your operations for many years, so it’s crucial to ensure it reflects your needs and goals. Many franchisees feel intimidated and avoid negotiating. However, remember, this agreement will shape your business future. Therefore, do not be deterred from negotiating the terms of your franchise agreement.
Franchisors and Standard Terms
Some franchisors may not be open to negotiating standard terms. They often have a set contract that they prefer not to change. Despite this, the agreement should still accurately reflect the deal struck, the party details and the particulars of the specific franchise grant. Ensure every detail matches what you discussed and agreed upon. Even if a franchisor is reluctant, it’s worth trying to negotiate. Sometimes, they’ll make exceptions or provide explanations that help you understand their position better. Consequently, it’s always beneficial to ask.
Key Clauses to Negotiate
When negotiating franchise agreements, focus on clauses that don’t accurately reflect your situation. Pay particular attention to party details, fees payable, the premises, and the term of the agreement. These are essential items. Fees can significantly impact your profitability. Therefore, make sure they are clearly defined and reasonable. The premises clause should reflect the specific location and conditions of your business. The term of the agreement should be long enough to allow you to recoup your investment and make a profit.
Also, watch out for any ambiguous or harsh clauses. These can lead to misunderstandings or disputes later on. If a clause seems unclear or unfair, ask for clarification or propose an alternative. Remember, a franchise lawyer can be very helpful in identifying problematic clauses and suggesting improvements.
Importantly, in Australia franchise agreements must adhere to the Franchising Code. Any clauses that don’t should be amended or deleted to avoid conflict. Your franchise lawyer will identify such clauses and advise on the appropriate negotiation steps to take.
Conduct Thorough Due Diligence
After reviewing the franchise agreement, undertake thorough due diligence based on that document. Seek clarity on any uncertain terms. Ask the franchisor to review extraneous documents referred to in the agreement. This could include manuals, policies, or supplier agreements. These documents can significantly impact your business, so it’s important to understand them fully before signing on the dotted line. Additionally, enquire how certain clauses will be enforced or work in practice. This helps you anticipate potential issues and plan accordingly.
The Role of a Franchise Lawyer
A franchise lawyer plays a crucial role in this process. They ensure the franchise documents are legally compliant and strike a fair balance between the franchisor and franchisee. A franchise lawyer can advise you on specific negotiation points or special conditions to include. Their expertise can save you from costly mistakes and help you secure a more favourable agreement.
When negotiating franchise agreements, having a knowledgeable franchise lawyer by your side provides peace of mind. They can explain complex legal terms, highlight potential risks, and negotiate on your behalf. This ensures your interests are protected, and the agreement is fair and balanced.
How are Franchise Agreements Negotiated?
The most common method of negotiation is to issue a negotiation schedule. That agreement will identify the clause or schedule item, the issue, and the proposed variation. Often, these schedules are exchanged between the Parties until a deal is struck. Thereafter, special conditions will be crafted to amend the terms of the franchise agreement, which special conditions will be incorporated into the Franchise Agreement itself.
Conclusion
Negotiating the terms of your franchise agreement is not something to shy away from. Don’t be deterred from asking for changes that reflect your needs and goals. While some franchisors may resist changes to their standard terms, it’s crucial to ensure the agreement accurately reflects the deal struck. Focus on key clauses such as fees, premises, and the term of the agreement, and be wary of ambiguous or harsh clauses. Conduct thorough due diligence and seek clarity on uncertain terms. The role of a franchise lawyer is invaluable in this process. They ensure legal compliance, balance, and provide expert advice on negotiations. Remember, your franchise agreement is a vital document that will govern your business for years. Therefore, take the time to negotiate and seek professional guidance to ensure it sets you up for success.