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How much can you negotiate the terms of a franchise agreement?

| Oct 21, 2020 | Franchise Law |

You want to open a franchise business, but the fees charged by the franchisor seem to be exorbitantly high.

Is there anything you can do to get them lower? Maybe. Here’s what you need to know:

  1. The franchisor doesn’t want to negotiate with you.

If the franchisor gives you a break, they probably have to disclose whatever material considerations they made to other prospective franchisees, per the Federal Trade Commission (FTC). That could hold up their negotiations with any other potential franchisee agreements they have pending and weaken their position.

  1. You should still negotiate for better terms.

Despite their reluctance to make any concessions, there are some areas of your agreement that you may be able to negotiate. The top issues you should address include:

  • Overly-broad guarantees: You can reasonably expect to be liable for the financial obligations specific to your business, but you want to narrowly restrict your potential risk when it comes to lawsuits against the corporation.
  • Right of first refusal: The franchisor may want the right to buy your business if you decide to stop operations, but you don’t want to let your investment be devalued. Make sure the agreement gives you fair market value, not a depreciated one.
  • Better renewal rights: The right to renew your franchise agreement is important to your long-term success, so don’t put all the power in the franchisor’s hands. You may have to get tough during negotiations to tilt things in your favor.
  • Restrictive covenants: It’s always smart to think ahead, and that includes considering scenarios where you decide to walk away from your franchise. You don’t want a restrictive covenant keeping you out of business in your industry.
  1. Get some help with the process.

You can’t do this alone and expect any measure of success. Franchisors have a lot of experience in their corner. It pays to work with an advocate who understands the mechanics of franchise law and use their experience in your favor. Check out our website to learn more.