A willingness to negotiate isn’t a sign of weakness. Rather, it demonstrates you’re reasonable and open to good faith discussions. It can also reduce the risk of the franchise agreement contravening unfair contract laws.
You don’t need to change the overall nature of your franchise agreement. There are 5 common negotiation points you can consider.
Many franchisees want the comfort that the term and options under their franchise agreement will match those under their lease, along with the timeframes to exercise options. This is a reasonable request. You may also consider approaching the landlord to reach a middle ground. If a franchisee is pushing for additional renewal options, protect yourself through renewal criteria based on a franchisee’s continued compliance.
Agreeing to a period of reduced royalties or ongoing fees when the business opens for trade shows franchisees you’re aware it will take time to establish their business and customer base. Remember, you can place conditions on this, such as requiring the franchisee to follow a strict business and marketing plan during this period.
Exclusivity can be contentious. Franchisees want it, franchisors are hesitant to give it.
If you don’t offer exclusive territories, and you’re asked for one, a compromise may be committing to not establish a neighbouring franchise within a certain radius of the business. This should be subject to the franchisee remaining in full compliance with their franchise agreement. An alternative may be giving the franchisee the first right of refusal to purchase that neighbouring franchise should you ever decide to establish one.
Social media is the face of modern business. Franchisors can be hesitant to allow franchisees to advertise online. If this is requested, a well drafted social media clause will give the franchisee the flexibility to promote themselves through an online presence, but also give you a degree of control. Ensure you have provisions about pre-approval of content, an ability to direct removal of inappropriate posts, administrator access and for the account to be transferred to you when the franchise agreement ends.
Many franchise agreements say that the franchisor can force a sale of the business if a franchisee fails to achieve performance targets. This can be harsh. If a franchisee asks to remove this, a good compromise would be a staged process.
First stage can be attending a meeting where a business and marketing plan for the franchisee must be agreed. Continued poor performance would then trigger a repeat of stage 1. Finally, if there’s no improvement, a forced sale would then be a reasonable consequence.
After weighing up whether a negotiation point is reasonable and justifiable, always ensure what you’re negotiating won’t disrupt the uniformity of your franchise system, which is after all the foundation of a franchise’s success.
This article was previously published on the Inside Franchise Business website. You can view an online copy of the article here.
Luke is an Associate with Stone Group Lawyers and is a regular contributor to online and print media for Inside Franchise Business. Luke is also a member of the Queensland Law Society Franchise Law Committee.
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