Also, franchisors typically reserve the right to approve buyers. The franchisor may impose many requirements on a buyer, including the need to submit an application and pay the initial fee.
In practice, transfer rights are tricky and will require adept structuring if you go to sell. You will need to guard against the buyer backing out or going around you directly to the franchisor.
18. No Industry Standard Agreement
There is no such thing as a standard franchise agreement for the entire industry. Every franchise brand creates its own contract documentation. Most agreements contain common types of provisions, but they won’t be worded exactly the same.
Prospective franchisees often want to know if they can negotiate the franchising agreement. Technically the answer is yes. You should always try to negotiate. However, be prepared for the franchisor to refuse. The nature of a franchise system is such that the franchisor tries to keep all requirements uniform.
A franchise agreement is a contract of adhesion, meaning it’s created by one party with greater bargaining power using standard form provisions. However, sometimes it’s possible for franchisees to negotiate minor points such as an installment schedule for the initial franchise fee.
The more popular the franchise, the less likely you can successfully negotiate. A well-established franchisor has little incentive to make one-off concessions. However, if you are one of the first in a new franchise, you might have more negotiating leverage.
20. Review with a Lawyer
Regardless of whether you are able to negotiate terms, it’s still important for you to get a franchise lawyer to review the franchise agreement and the FDD.
An experienced franchise lawyer can explain important provisions of the franchise agreement. A franchise lawyer may also be able to point out unusually harsh or one-sided provisions that are not common in the industry. An experienced attorney will understand what to look for in the Franchise Disclosure Document, and can identify red flags. Also, the attorney may know of common law and state laws that protect franchisees. Knowing key points before signing could save you from making a big mistake.
Read more: The Importance of Hiring a Franchise Attorney.
The franchise agreement is a document with the rights and obligations of the parties outlined. The franchise relationship is not employer-employee. As the franchisee you operate a separate business in accordance with the franchise system. You are an independent business owner and the franchise agreement reflects this separation of interests.