All good Franchise systems will require that Franchise agreement are the same for all Franchisees. As a consequence, they will generally make the statement that the Franchise Agreement is a non-negotiable instrument. If a Franchise system allows for the negotiation of the various clauses contained within its Agreement that should be an indication that their own belief in their system is not as strong as you might think. Yet the system is what a Franchisee will be investing in, so…
That’s not to say that Franchise Agreements don’t evolve over time to consider current business practices and opportunities. However, in any short-term time window, the Agreement will be the same for all Franchisees joining the system. If you think about that premise, that’s really what Franchising is all about.
The Franchisor offers a consistent system of value to all its Franchisees, including a uniform support system, branding strategies, operating systems, and administration systems. That’s a primary reason for Franchisees to invest in becoming a Franchise within the system – because those things all deliver a great value as opposed to starting from scratch.
Therefore, it is imperative that the Agreement between a Franchisor and each Franchisee is the same so that the playing field is even for everyone. The Agreement is really a description of the business systems, and the rules of engagement for that system. The Franchisee should review that Agreement to ensure that those systems and those rules of operation make sense for them. Each Franchise Candidate should make the decision that ‘yes, this makes sense to me, and I can prosper in this relationship, control my own outcomes, and build an asset for the future’.
The Franchise Agreement will describe the details of operation and the methods of protecting the system. After all, each Franchisee wants to be sure that the Franchisor has the right, and the clout, to deal with any Franchisee that causes detriment to the system – the very system in which they are investing. Each Franchisee should want to know that the Franchisor will have the ability to protect their investment, and evolve the business to increase in value on their behalf. In order to provide for those protections, the Agreement will seem to be slanted in the favor of the Franchisor. Actually, it’s slanted in the favor of the system.
One of the expensive errors a Franchise Candidate can make is to simply take the Agreement to an advisor or lawyer who is not familiar with Franchising. A lawyer wanting to negotiate every clause of the Agreement as if it were a normal Partnership Agreement will translate to thousands of dollars in legal bills. Those dollars end up being wasted because the Agreement is not usually negotiable. The role of a good franchise lawyer (not a regular business or corporate lawyer) is to help the Franchisee to understand the Franchise Agreement, so that the Franchisee is comfortable operating the Franchisor’s system in their own market under the terms described in the Agreement.
The Franchisor has certain disclosure requirements in both Canada and the United States. It is incumbent upon the Franchisor to ensure that the Agreement that is signed with its Franchisees is consistent with the Agreement included in the Franchise Disclosure Documents. Therefore, if the Franchisor negotiates the various clauses of its Agreements, then they will be inconsistent with their Disclosure Documents.
In summary, the main reasons that Franchise Agreements are non-negotiable include:
1. The requirement and desire for consistency among all Franchisees
2. The need for a strong Agreement that can consistently deal with any problems that may arise in order to protect the system for all Franchisees on an ongoing basis
3. The strong belief in the value of the system, which makes that system so valuable to each participant, extends to the Agreements among all parties
4. The need for consistency with Franchise Disclosure Documents