You’ve expressed interest in purchasing a franchise, and have received the standard suite of franchise documents. After reading over these documents, you’ve clarified some issues, and negotiated with the franchisor to make some changes. If you’re happy with what the franchisor has promised you, there are a few considerations to remember before signing the original documents and starting your exciting new adventure as a franchisee. This article will explore the law surrounding franchise negotiations and what’s involved in amending the franchise agreement.
Can I Ask For the Documents to be Amended?
Absolutely. Let’s say that you have agreed that the franchisor will give you additional training in the first few weeks of your franchise and that this will be at no extra cost. But let’s also say that the franchisor has vaguely worded the franchise document so that he or she may or may not have to provide you with the extra support and training.
You can ask the franchisor to amend the franchise agreement so that it reflects the changes you have negotiated. Any amendments you try to make will be for this document, and not for the disclosure document – which is a standard document for the whole franchise system. You will not be able to change the disclosure document. That is even if there is an item in the disclosure document that you have clarified (such as fit-out costs, or your right to engage in local marketing activities), and you have agreed on a specific cost that is lower than what is in the disclosure document.
The franchise agreement is the contract that is unique to the relationship between you and the franchisor. The franchisor will enter into a different contract with each franchisee. Even if they tell you that it is a “standard” franchise agreement, this does not mean that they have set the contract in stone. You have the right to ask for the agreement to be changed to mirror your specific needs.
As with many franchise negotiations, the franchisor can only say yes or no. If they have already agreed, you can rely upon their earlier representations to ask for the franchise agreement to be changed on the basis that it is a point of consensus.
Entire Agreement Clauses
Your franchise agreement may or may not have an “entire agreement” clause. This clause is a standard term in many franchise agreements, which states the franchise agreement contains all the terms and conditions governing the legal relationship between you and the franchisor. Taken on its face, this clause (if it exists in your specific contract) would prevent you from relying on any promises that the franchisor has made to you which the franchise agreement does not contain. There is an important caveat, discussed below.
Good Faith Obligations
The Franchising Code of Conduct contains “good faith” obligations. The Code says that if the franchisor makes any verbal or written representations to you about how the franchise will work, or what your rights or obligations will be, the franchisor cannot ask you to sign a franchise agreement that is drafted to exclude any of those existing representations. Importantly, if you do sign a franchise agreement that contains a waiver along these lines, the clause cannot be enforced by the franchisor.
Therefore, even if there is an “entire agreement” clause, the franchisor cannot rely on this clause to automatically exclude representations that they have made to you about how the franchise will work (such as promises about your first right to purchase any new franchise businesses within your territory).
Nonetheless, as a matter of best practice, we recommend that you ensure that all amendments and promises are in the franchise agreement. This practice is ultimately in your best interests, as it creates more certainty around each party’s obligations if a dispute arises down the track.
Won’t Amending the Franchise Agreement be Expensive and Complicated?
Not necessarily! The easiest way to incorporate your agreed changes is by attaching a page of “special conditions” to the franchise agreement. This page will save you having to go through the entire agreement and find each clause you have modified. The “special conditions” refer to the body of the agreement and state which agreement has changed specific parts. You should draft the special conditions in a way that ensures that these terms overrule any clauses to the contrary in the body of the main agreement.
Our experienced franchise lawyers can draft special conditions capturing promises made by the franchisor. We can also help you negotiate any changes to the franchise agreement, to help better protect your rights. Questions? Get in touch with our franchise lawyers on 1300 544 755.