Negotiate the Terms of a Franchise Agreement

April 13, 2011, 10:41 PM

Prospective franchisees should always try to negotiate to improve the terms of their Franchise Agreement.

Contrary to what franchisors salespeople are likely to tell you, franchise agreements are negotiable prior to execution. While many franchisors (particularly large, established franchisors) discourage negotiation, franchise laws do not prohibit negotiation of franchise agreements. Indeed, for franchise sales governed by Virginia law, the Virginia Retail Franchise Act allows a new franchisee to declare a franchise void within the first 30 days if [t]he franchisee was not afforded the opportunity to negotiate with the franchisor on all provisions within the franchise, except that such negotiations shall not result in the impairment of the uniform image and quality standards of the franchise. Va. Code 13.1-565(b).

While economic terms such as the amounts of initial franchise fees and royalty fees are most likely to be non-negotiable, potential franchisees can frequently improve their position vis--vis the franchisor by negotiation of other important terms of the franchise agreement. Franchisors will typically not change the text of their Franchise Agreement, but will frequently agree to a standalone addendum to the Franchise Agreement, changing or clarifying certain of its terms. --Stephen E. Story