After you’ve identified a promising franchise opportunity, there’ll be many discussions with the franchisor’s representatives. If you’re new to franchising, don’t be afraid to ask questions to gauge what’s up for negotiation. Approach your accountant and lawyer during these early stages – a professional advisor experienced in franchising can offer a wealth of experience towards what’s negotiable and where to start.
Once the big-ticket items are agreed with the franchisor, they’ll provide your draft franchise agreement. Don’t wait until this point to start negotiating. Some key things to focus on when beginning your discussions with the franchisor include:
These are just a few examples of common things a franchisee can negotiate. There can be many others depending on the franchise. Get a written commitment about anything you negotiate.
When you receive your franchise agreement, nothing prevents you from requesting further changes. However, be mindful that franchisors are generally reluctant to amend their standard agreement. Work with your lawyer to determine what’s worth requesting, and what’s worth accepting. There can be many instances where the franchise agreement will say something, but in fact, the Franchising Code of Conduct or another law override what the agreement says – if you already have that legal right you don’t need to request that change.
Larger franchisors sometimes handle the process of securing and negotiating your lease. You should ask from the outset what involvement your franchisor will have and if you’ll pay for this service. Franchisors who offer this and who have existing relationships with landlords can be an invaluable resource as they’ll know what you’ll need and what they can achieve. However, always obtain your own independent advice.
The franchisor’s involvement may be influenced by who’ll hold the lease. If the lease will be in your name, they may hold less interest, but if it’s in their name (and you’ll get a licence to occupy the premises) they’ll want greater control over the lease.
Be mindful that larger landlords (such as shopping centres), will be less willing to negotiate, but leases are always up for negotiation (more so than a franchise agreement). Remember again that the law implies certain provisions into leases, meaning that despite what the lease says about something, the law may override that. Extra caution is needed if the lease isn’t governed by retail leasing legislation. Your lawyer can advise you on what’s appropriate to negotiate.
Landlords often offer incentives such as rent-free periods or fitout contributions which can be negotiated for your circumstances. An essential thing to ensure is that the dates, term and options, as well as timeframes to renew under the lease, match those under your franchise agreement. You don’t want the time on your lease to expire but still have a franchise agreement on foot, or vice versa.
Always remember that if you don’t ask for something, you’ll never know if you’ll get it. We’re often surprised at the amazing deals franchisees can negotiate which really put them ahead of their competitors. A little forethought and planning in consultation with your professional advisors can help you secure a franchise agreement and lease for a successful business.
Luke is an Associate with Stone Group Lawyers and is a regular contributor to online and print media for Inside Franchise Business. Luke is also a member of the Queensland Law Society Franchise Law Committee.