franchising aspects Oct, 29 2009

Negotiating franchise agreement

Franchise agreement is a guide in the franchising domain. So, it is very important for a franchisee to be comfortable with all its provisions before taking a franchise. And to attain this comfort level, you may feel to bring in some changes in the franchi

By Ramanjit Kaur
Feature Writer
Negotiating franchise agreement

After signing the franchise agreement, a franchisee is bound to follow the set policies and meet the specified obligations and responsibilities. If you have already made up your mind to take up a franchise business, it is advisable to get an experienced legal representative for yourself who would help you all the way long. As a novice in the franchise business, you need a supervisor who has a good knowledge about the franchise model and its technicalities. Before signing a franchise agreement, it is necessary for you and your lawyer to read all its provisions thoroughly. This legal document has many terms and provisions included in it. It is your duty to focus on the important points than wasting your precious time on unimportant aspects of the agreement.

Negotiable terms

A franchise agreement has many provisions, of which, some are negotiable and some are not. So, your lawyer’s primary concern is  to recognise and concentrate on the negotiable part of the legal document. But negotiating the franchise agreement is not at all an easy task. There are many franchisors who act tough in terms of making any changes in the franchise agreement. Sometimes, the franchisors include very onerous and unreasonable terms in the agreement which may be hard to comply with and may prove detrimental to the business in later course. The franchisee and his lawyer should make a review of such clauses, and seek remedial measures before signing the final agreement.

Non Negotiable terms

However, there are certain provisions that cannot be negotiated, such as, franchise fees, royalty, territory size, termination condition, length of the agreement, and so on. An experienced legal counsel would never waste time on such non-negotiable conditions, he would rather concentrate on the more important issues which are negotiable, and can affect on the day-to-day functions of your franchise business. These are:  

  • Before signing a deal, be sure about the products and services that you are allowed to sell from your franchised outlet. As any misunderstanding may cost you your whole business.
  • There are some specific provisions regarding how much share you have to spend on the advertising and marketing of the brand. You should have a good understanding of how the advertising funds work.
  • Be careful that you should not be held liable for the losses and damages which are not caused by the direct acts of you and your employees..
  • In some franchise agreements, right is given to transfer your franchise to the third party. So, make sure that you are permitted to sell your franchise business to the third party, if you are not able to continue with it.

These are some provisions that can be negotiated, but you have to confirm whether your franchisor is ready to negotiate on these points or not. Franchise agreement is a complex legal document that is meant to favour the franchisor. So, it is up to you and your legal advisor how you make your franchisor do some changes in it.

And the last, it is very important for a franchisee to understand fully his obligations and responsibilities and must be comfortable with the final agreement before signing it, as signing a franchise agreement means executing a legal contract. Furthermore, take caution that the agreement is followed strictly, as there is no franchise law in our country which may protect you from any misadventures.

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