Negotiating Franchise Agreements: Best Practices for Delhi-Based Franchisors

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Any agreement will be a success only when its terms are beneficial to all the parties to that agreement, and the most effective way to achieve this is to ensure that both parties speak out about their expectations to each other, and then, in mutual negotiations, they agree to a particular set of terms and conditions which are beneficial to them. Under franchise agreements, not every aspect of them can be negotiated, and the ones which can be negotiated upon have to be done with a diligent process.

Following are some of the aspects of the franchise agreements which can be negotiated:
• The initial fees which the franchisee has to pay to the franchisor in the form of the franchise fee can be negotiated. The franchisee can negotiate for a lower fee considering various circumstances, like market conditions, economic instability, financial situation, or the area of the territory in which they are made to operate. Along with this, the ongoing fees in the form of royalty can also be negotiated to be reduced if the franchisee proves that he is an important asset to the business, which brings significant value and higher sales volume to the franchise system.
• The franchisee can also negotiate with regard to the area granted to operate the franchise and demand larger or more strategically beneficial territories. This provides the opportunity to cover a larger consumer base under a single outlet and avoiding any internal competition from other franchisees of the same brand.
• To enhance the skills of the staff of the franchise, the franchisee can request for additional training sessions and extended training periods. This can be negotiated for both the initial as well as ongoing training and support. Along with this, through negotiations, access to additional resources, guidance in marketing strategies, and more frequent visits from the franchisor’s team can be demanded that were not included in the standard offering.
• Generally, there remains uniformity throughout all the franchises of a particular brand in terms of operational procedures, but in some cases, the franchisees can request to provide additional products and services beyond the standard franchise offering. This can also include flexibility in the operational hours, depending on the local market conditions.
• After the expiration of the agreement, the renewal terms of the franchise can also be negotiated, through which the franchisee can make adjustments to the renewal fees and change any conditions post-renewal.
• However, if the franchisee voluntarily wants to exit the franchise agreement, he can negotiate for some favourable terms for exiting, such as a reduction in penalties and assistance in further selling the franchise.
Apart from the above-discussed points, the franchisors and the franchisees are free to negotiate on the terms on which they feel necessity. Deciding the aspects on which negotiations are to be made is not doubt a difficult task, but utilizing effective strategies to make negotiations is a brainstorming task.

So, following are some of the strategies which assist in how the franchisees can effectively negotiate terms:
• Make thorough research about the history and background of the franchise and understand its position in the market. This will allow the franchisee to make realistic expectations from the franchisor by knowing the terms and conditions on which it has established its roots.
• Evaluating one’s own position, especially financial situation, helps the franchisee to show what it brings to the franchise. This gives an opportunity to strengthen one’s case during negotiations.
• Analyse the local market in detail through reports, surveys, or discussion to know the actual potential of the area so that valid arguments can be put forward when making favourable terms, such as lower fees or larger territory.
• Efforts shall be made to come up with a solution which creates a win-win situation for both the franchisor and the franchisee. A rigid attitude shall not be kept while negotiating, and wherever possible, a little compromise shall be made so that others will be willing to compromise on our favourable terms.
• During economic downturns or slower periods, the franchisors would be willing to agree to make negotiations to attract more and new franchisees.
• At the end of the fiscal year, the franchisors, in order to meet the sales target and improve their financial reports, might be willing to negotiate and be more flexible in acceptance of the demands.
• Getting advice and assistance from an expert in the field will also be crucial, as they will guide both parties in a better manner and help both agree to a balanced solution.
While conducting negotiations, it shall be ensured that both parties attain benefit, and no single side alone will pluck all the fruits and hamper the working of the franchise.

To ensure fair opportunity, following are some of the considerations to be complied with:
• Though negotiations can be made in both oral and written formats, it is preferred to have all the promises, demands, guarantees, and assurances recorded in a written agreement, which will make it legally binding as well. It also provides protection against future disputes because of its clarity in nature and as a form of evidence in a court of law.
• Mutual trust is the essence of every relationship, and thus, the franchisor shall, without any ill-motive, provide accurate and thorough details, and in return, the franchisee shall sincerely disclose his capabilities and intentions.
• Participation in open and truthful discussions is the key to a healthy relationship, so fair dealing shall be encouraged. This can be achieved by not giving any sort of incorrect or false information and holding back any important details, which could result in legal disputes in the future and harm the business partnership.
• Ensure that the franchise complies with the relevant local laws of the marketplace and special legislations related to the franchise system, directly or indirectly. If on any legal aspect any party has a doubt, it shall be tried to be covered through the respective law after mutually deciding the terms in regard to that aspect to which both agree.
• A popular practice nowadays is to have a Franchise Disclosure Document (FDD), which is provided by the franchisor. It is important to thoroughly examine this document as it contains essential information about the franchisor, the franchise system and the agreements which are finalized and signed for this system. Other important sections on which focus should be placed are related to the fees, litigation history, financial statement, and the obligations the franchisor has towards the franchisee.

At last, it would be imperative to say that to successfully negotiate a franchise agreement, one must skillfully blend preparation, strategic thinking, and clear communication. The most important thing is to know which aspects of the franchise can be negotiated and the effective means or strategies to conduct them. Each negotiation will be unique, but the underlining principles of every such negotiation are the same and shall end with a beneficial result that every party will yield.
Authored by: Adv. Anant Sharma & Sahil Arora

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