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Negotiations with prospective franchisees can be vital to expanding your franchise network. Effective negotiations can lead to mutually beneficial franchise agreements that set your relationship up for long-lasting success. However, navigating these negotiations requires careful planning, communication and understanding of prospective franchisees’ needs and objectives. This article equips franchisors like yourself with the skills to master negotiations, leading to satisfied franchisees and the long-term success of your network.
Negotiating the Franchise Agreement
Many franchisors offer one standard franchise agreement and are unwilling to deviate from it. They will share the same, if not very similar, contracts with all their franchisees. However, some prospective franchisees might try to negotiate the terms of the franchise agreement.
A prospective franchisee might want to negotiate with you for many reasons, including:
- financial reasons;
- seeking more favourable terms such as broader territorial rights;
- a desire for additional support and training resources; and
- to ensure they have adequate legal protection.
You do not have to enter a negotiation process and can offer the franchise agreement as it is. However, some franchisors, especially those with newly established networks, can benefit from providing some flexibility. Such flexibility can attract prospective franchisees to accept your offer of a franchise opportunity. If you are willing to negotiate, consider several implications and tips relating to the negotiation process.
Key Legal Considerations During Negotiations with Prospective Franchisees
1. Seek Legal Advice
You should seek legal advice, as a lawyer can support you through the negotiation process. They can advise you on various aspects of the franchise agreement and guide you through each stage. Their work might include:
- reviewing proposed terms;
- identifying potential legal risks;
- helping you understand your rights and responsibilities;
- drafting or revising contractual language to ensure clarity; and
- representing your interests.
Legal advice ensures you handle the process in a well-informed manner and mitigate the risk of potential disputes that could arise from the negotiation process.
2. Consider the Implications of Making Certain Changes
You should consider potential consequences should you make the changes the prospective franchisee suggests. For example, if they ask for a change to the payment terms, this can impact you financially. Alternatively, if they ask for broader exclusive territory, this could affect an existing franchisee’s rights or your plans for your network.
The negotiation is an attempt by the franchisee to extend and protect their interests. It involves bargaining and balancing your rights and the resulting obligations with theirs. Some of their requests during negotiations might impact your legal rights. For example, if a prospective franchisee asks for a change to particular contractual provisions, this might happen. Therefore, you should carefully consider the implications of changing the franchise agreement.
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Next Steps Following Successful Negotiations
1. Make the Necessary Adjustments
Following successful negotiations, you should redraft the franchise agreement or create a supplementary text that includes additional terms or provides clarification. A lawyer can help you do this and inform you of the relevant legal implications.
You should also consider whether the new terms or adjustments will transfer to successor franchisees that take over the franchisee’s business. Suppose you do not want this to happen and want successor franchisees to receive the original franchise agreement in the first instance. In that case, you should ensure that your contract with the current prospective franchisee reflects this.
2. Consider Confidentiality
You might require prospective franchisees to sign non-disclosure agreements (NDAs) before sharing certain information with them. The scope of the NDA might cover certain financial information or information about your franchise concept’s unique operating systems, for example.
You might want to consider a further non-disclosure clause or separate agreement regarding the adjustments to the franchise agreement. Such an agreement would oblige the franchisee not to disclose information relating to the changes you made to the franchise agreement as a result of negotiations.
This handbook covers all the essential topics you need to know about franchising your business.
Key Takeaways
While some franchisors offer standard franchise agreements, prospective franchisees may seek to negotiate the franchise agreement with you for various reasons. Being open to negotiation can attract potential franchisees and lead to mutually beneficial agreements that lay the foundation for long-lasting, collaborative partnerships.
Negotiating with prospective franchisees involves balancing legal considerations and business interests. You should carefully consider the implications of proposed changes to the franchise agreement. Seeking legal advice is crucial during the negotiation process. A lawyer can provide valuable support and help mitigate the risk of legal disputes. Following successful negotiations, you can redraft the franchise agreement or create a supplementary text to incorporate the terms you have agreed upon.
If you would like legal support while recruiting new franchisees and negotiating the franchise agreement, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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