6 Quick Tips for Franchise Negotiations

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Table of Contents

• 1. Know Your Rights as a Contracting Party
• 2. Know What the Document Contains
• 3. Understand the Difference Between the Franchise Agreement and the Disclosure Document
• 4. Review the Operations Manual Before Signing
• 5. Understand the Role of Special Conditions and/or the Warranties Schedule
• 6. Get Professional Advice

If you’re a prospective franchisee, it’s essential that you know your rights and can negotiate the contract terms. After all, you are likely handing over a fat wad of cash as well as the next 5 to 20 years of your life to run a franchise business. We set out six quick tips below to assist with your franchise negotiations. 

1. Know Your Rights as a Contracting Party

There are many standard form contracts out there. In our view, Franchise Agreements should not be one of them. Franchising is premised on the same system applying uniformly. However, it’s important that the terms of the Franchise Agreement are flexible to accommodate the different circumstances and requirements of individual franchisees. If something doesn’t work for you, don’t think you can’t ask for it to be changed.

2. Know What the Document Contains

It sounds obvious, but in fact, a lot of people sign contracts without really understanding or even reading their terms. Read the entire document and seek clarity on any ambiguities in your franchise documents.

3. Understand the Difference Between the Franchise Agreement and the Disclosure Document

In essence, a Franchise Agreement is a contract and a disclosure document an ‘information statement’. In most cases, a disclosure document is fixed, albeit if something therein doesn’t reflect the deal struck, this should be noted in the special conditions/warranty schedule.

4. Review the Operations Manual Before Signing

In most cases, a Franchise Agreement will include a term whereby the Operations Manual is binding, and a breach represents a breach of the Franchise Agreement. So, if a franchisee is asked to sign the Agreement without the franchisor having provided the Manual, they are, in effect, agreeing to a binding contract which they have not even seen.

5. Understand the Role of Special Conditions and/or the Warranties Schedule

The Franchise Agreement usually includes special conditions or the warranties schedule as an annexure. Their very purpose is to vary the ‘standard’ terms of an Agreement or incorporate into the contract itself any additional promises or assurances the franchisor has made. For example, if the franchisor has made an assurance during pre-contract negotiations to provide ten referrals per week, and this is not in the Agreement itself, it is prudent to incorporate this assurance into the warranties schedule. The franchisor is then bound by that promise and cannot later dispute the terms.

6. Get Professional Advice

It sounds obvious, but a lot of franchisees don’t speak with a professional, much to their detriment. A professional advisor can review the franchise documents and advise you of any particularly unfair, invalid or illegal provisions.

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Hopefully, remembering these tips will help you negotiate the terms of a successful and mutually beneficial contract. If professional assistance is required, and in the context of franchising it should be, get in touch with our specialist franchise lawyers at LegalVision. We can help with negotiations, demystify any ambiguities and help set you on the path to franchising success!