8 Things to Consider When Negotiating a Franchise Agreement
If you have decided to purchase a franchise, do not underestimate the importance of the franchise agreement. Under Florida’s franchise law, you have a right to negotiate a fair franchise agreement.
Contrary to popular belief, franchise agreements are negotiable, even when it seems that the franchisor carries all the negotiating power. A skilled West Palm Beach Franchise Law attorney can help negotiate a better franchise agreement.
These are at least eight things to consider when creating and negotiating a franchise agreement in West Palm Beach or elsewhere in Florida.
- First of all, never sign any agreement without negotiating. If a salesperson claims that the franchise agreement is non-negotiable, you may feel pressured to sign it on the spot. However, no matter how “non-negotiable” the deal is, an experienced lawyer is always able to find provisions in the agreement that are negotiable.
- Negotiate extensions. Consider negotiating extensions in writing. To do so, you need to understand the timing of the franchise agreement to avoid triggering any avoidable extension fees.
- Your right to obtain waivers in the event of the franchisor’s company-wide decisions. Yes, franchisors reserve the right to make company-wide decisions, but you can negotiate in the agreement your right to obtain certain waivers and a period of time to make any necessary changes when the franchisor makes major decisions that affect your franchise.
- Make sure that all fees are disclosed. Under Florida law, all fees must be disclosed and summarized in the fees section of the franchise disclosure document. There may also be miscellaneous fees in addition to marketing, reservation, and standard royalty fees.
- Have as few requested changes as possible. Limiting the number of requested changes to the franchise agreement to those that are negotiable is a crucial psychological trick. After all, when you show the franchisor a revised agreement with too many requested changes, he or she is more likely to reject them all.
- Fee and Royalty considerations. One of the considerations for those whose royalties are based on sales is to negotiate to pay a percentage of net sales, instead of gross sales.
- Assignment. Consider negotiating a franchise agreement in a way that would prohibit the franchisor from unreasonably delaying, withholding, or conditioning consent to the assignment. Also, seek authority to transfer interests to or for the benefit of family members or affiliates for estate planning purposes.
- Termination. Your franchise agreement must set forth the franchisor’s right to terminate the default only after the franchisee had a reasonable opportunity and failed to cure the default. A franchisee must also reserve the right to terminate all or part of the agreement if the franchisor breaches the contract, files for bankruptcy, or violates any applicable laws.
When it comes to negotiating a franchise agreement, talk to current franchisees to discover any pitfalls to watch out for and find out what they are dealing with on a regular basis. Then, you can use that information to minimize those pitfalls and risks when negotiating your own franchise agreement. Also, watch out for material misrepresentations when purchasing a franchise.