Why Franchisors Don’t Like Negotiating
Contrary to popular opinion, the franchisee does have negotiation rights! Often times, due to the intimidating nature of the bulky Franchise Disclosure Document (FDD) and the franchise agreement (written in full legalese/hieroglyphics), the potential franchisee believes that they must adhere to all that is stated in the agreement otherwise the franchisor will not grant them a franchise. However it is important to realize that the franchisor has as much to gain from the transaction as you. Especially in this tight economy, franchisors are facing more challenges in bringing new franchisees to the fold and are more likely to be negotiating their “unflinching” terms with a potential franchisees.
The first impression that the franchisee gets from reading the franchise agreement is total incomprehension, unless they are well versed in legal terminologies and phrasing. The FDD is required to be in plain English but the franchise agreement has no such requirement. Typically, the franchisor’s legal department works extremely hard to secure the franchisor’s position through the Agreement and makes it impenetrable for someone who is not a lawyer to understand. The uniform nature of the agreement for all franchisees makes it assumed that the franchisee must sign the agreement so that all the franchisees follow the same terms. Even though that is partially true, the franchisee can plead their case and negotiate terms where they believe that they are offering something unique to the franchisor.
The most common arguments presented by franchising companies is that they need to keep all the franchisees under the same system, the franchisor lawyers won’t let them change anything, and that the owner would disagree with any revisions made to the franchise agreement. These arguments are valid but they are no excuse for you, the potential franchisee, to bear any unfair clauses. The franchise agreement does not protect the franchisee and does not ensure equal treatment. Therefore it is suggested that the franchisee has a specialist franchise lawyer go through the agreement beforehand.
Negotiation theorists have stated a technique called “the authority of the printed document”. Through this approach the franchisor usually has the upper hand since they have prepared an official printed document which easily intimidates the potential franchisee. The strength of the printed word is always stronger since it brings certain finality to the negotiation.
Franchisors do not wish to change their agreement terms on the ground that it incurs legal expenses and those are deemed as unnecessary or unwanted expenses for the franchisor. Another problem that arises for franchisors due to having numerous differing franchise agreements is that in their franchising events where the franchisees get together, there may be a creation of dissent amongst the franchisees if they find out that others had more flexible arrangements.
The franchise agreement is not set in stone and you should make sure that you negotiate the areas where you have some concerns. The bottom line, in this economic environment, don't assume that you don't have leverage in your negotiations.
Franchisee Insight: Learning from Franchisor Litigation (or Lack Thereof)
The Item 3 disclosure requirements are complex compared to other items of the FDD, but they can generally be summarized as follows. In Item 3, franchisors must disclose:
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