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Can a Franchise Agreement be Changed?

Some terms of the franchise agreement, such as territory and renewal rights, can potentially be negotiated during the due diligence process.

While franchising is all about sticking to a proven system, individual franchise agreements are not always 100% non-negotiable. Franchise agreements are often referred to as “adhesion contracts,” which means they are designed so franchisors can successfully enter into contracts with multiple parties without having to adapt each agreement to fit the needs of the individual owner. While certain core aspects of a franchise agreement, such as the royalty rate, operations or proprietary products, should be set in stone, there are some terms that have the potential for negotiation. 

These can include:

  • Size of the protected territory
  • Grace periods regarding the commencement of royalty obligations
  • Liquidated damages and liability for early termination
  • Renewal rights
  • Transfer rights
  • Cure periods for alleged defaults
  • Potential rights of first refusal

In general, franchisees should approach the negotiation process with realistic expectations. For example, the ability to negotiate changes to the franchise agreement will depend on the maturity of the franchise system and the size of the agreement. A prospective multi-unit operator with a lot to offer will have a much better chance of convincing a legacy franchise brand to make changes to the terms of the agreement. 

Requests for changes should be kept to a reasonable level, as most franchisors will see it as a red flag if a candidate comes to the table with too many requests. Remember, if a franchisor is willing to negotiate on significant issues, that may actually be a bad sign. Franchisees should want to join a reliable brand, and an overly flexible franchisor could be an indication of potential inconsistencies within the franchise system.

Before signing on the dotted line, it is important to enlist the help of a qualified franchise lawyer. These experts will help candidates understand what negotiations (if any) are possible and how to go about asking for changes to the agreement. 

Once a candidate has signed the franchise agreement, the only way that the agreement can be amended is with the consent of all the parties involved.