AJPark

The term franchise has evolved from the Middle French "franchir" meaning "to free". The concepts of 'freedom or flexibility' are often overlooked by both franchisors and franchisees in their approach to the franchise agreement. Yet, it is the one idea that characterises the most successful franchise relationships. Freedom is a tremendous asset in negotiating and recording every franchise relationship.

An emphasis on flexibility from both parties can ensure the franchise documentation and related negotiations provide not only a legal framework for their long-term interaction, but also an opportunity to set a tone of mutual trust and respect.

Most franchisors and franchisees share the view that the franchise agreement is an unalterable, static account of the parties¡¦ duties. While the traditional approach to franchise agreements has favoured consistency and uniformity, as the sector changes and our knowledge of franchising develops, it is becoming apparent that a more sophisticated approach is appropriate. 

It is also thought that franchise agreements are usually heavily slanted towards the franchisor. Certainly the odds are stacked in favour of the franchisor because:

• the business belongs to the franchisor
• the franchisor drafts the contract and associated franchising manuals, and
• the franchisor is perceived to select the franchisee. 

In reality, however, there is scope for manoeuvre in negotiating the agreement.  Franchisees should never underestimate the potential leverage they hold. It is always open to the franchisee to redress the balance to achieve the deal that best suits its needs.

It is in both parties¡¦ interests to devote time, energy and resources to negotiating and drawing up an accurate franchise agreement. Such an agreement not only records the duties of both parties, but is also a meaningful and dynamic instrument that will support the development of their relationship.

An important consideration for both franchisees and franchisors is to recognise that both the franchise agreement and the franchisor¡¦s attitude towards it, are large elements of the package offered by the franchisor, and ones the franchisor should be judged on. While the franchisee will not be encouraged by a franchisor unwilling to negotiate in any area, a franchisor willing to agree to all requests ought to be viewed by the franchisee with equal suspicion.

A franchisor will need some degree of uniformity about the franchise agreement to avoid accusations of unfair treatment of individual franchisees. Similarly, the franchisor will want key obligations from the franchisee in order to adequately protect its assets. This should not preclude both parties from keeping an open and flexible attitude during discussions about the franchise agreement. 

As with any commercial negotiation, there will be issues that the franchisor is unable to change its position on. But there will undoubtedly be some areas where some flexibility is possible. The gains from being accommodating can outweigh the perceived sacrifice at the negotiating table. 

The franchise agreement and related negotiations should not be seen just as a formality.  Neither should they be cast to the fate of a ¡¥one-size-fits-all¡¦ precedent agreement.  Developing a franchise agreement gives an opportunity for both parties to test the prospects of any future relationship. 

Bringing flexibility to the negotiating table and the franchise agreement is the basis for a lasting mutually valuable relationship, which is widely accepted to be the key to a successful franchise business.

An edited version of this article was published in Her Business, August 2008.

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  Corinne Blumsky

  Partner