You may receive an addendum from a prospective franchisee’s attorney which contains many requests for changes. Your goal is to have as uniform a document as possible. You should only consider changes when the franchisee will have difficulty complying with the provision – and in that case, you should explore why compliance will be difficult.
Justifiable reasons to request a change, for example, if someone has another business that might be seen as a competitor, or if their franchise will be located in a more difficult market, with lengthier processes or logistics that keep them from getting up and running in the time allotted.
When you negotiate too much, your FDD becomes less accurate, which is why we encourage you not to make changes. You want all your franchisees to be treated fairly for many reasons, but certainly because they will talk to one another. As stated earlier, you need to be conscientious of a change you make for one franchisee might need to be made for all franchisees – current and future.
Ask yourself if the change is something you could defend when confronted. Imagine standing at the bar at your annual convention and having a franchisee ask, “Why did Steph get a better deal?” Be prepared to account for any inconsistencies between franchise agreements. For example, you would answer, “Steph owns 100 units and you own one. She did a 20-store deal.” That’s reasonable, it’s defensible, and it’s better for the system. Always think about the entire system, not just one deal.
A strong franchisor cares about consistency, brand standards, and has developed a system that is good for everyone. This doesn’t mean you shouldn’t be open to negotiation, just exercise caution. Once you have built up credibility with a very large franchise network, you can take negotiations off the table.
Be aware candidates might or might not be working with an attorney. They might be working with an attorney who does not specialize in franchising. Any comments sent to you by the candidate are always advised to be reviewed by your Spadea Lignana legal team before accepting any comments/changes.
Best Practices
If you do want to change provisions, please come to us. Do not write a sidecar agreement.
Avoid first refusal. First refusal is often asked for and strongly discouraged. If you are in a situation where a prospect is demanding a right of first refusal, put a timeline in place limited to 12 to 18 months. Never make it perpetual. We’ve found if they don’t expand in two years, they’re never going to, and you need to avoid squatters as they hamper the growth of your system.