Negotiating and Drafting Franchise Agreements: Key Provisions and Negotiating Strategies

Description

Franchise agreements are highly regulated contracts that require careful drafting. The heart of every franchise contract is a trademark license, although not every trademark license is a franchise. Unlike other consensual business arrangements, to lawfully form a franchise, a franchisor must comply with a comprehensive pre-sale disclosure process. Additionally, compared to other business arrangements, franchises tend to be long-term contracts lasting 20 years or longer depending on renewal options, which makes it imperative that franchise agreements give the franchisor authority to require franchisees to modify their operations so that the franchisor can keep the brand competitive and relevant to consumers. Franchise laws regulate many substantive terms in franchise agreements like termination, dispute resolution, and transfer. As a result, it is essential that practitioners understand the complex regulatory landscape and wide array of legal issues in representing franchise parties in the negotiation and enforcement of franchise agreements.

While some franchisors may offer their franchises on a "take it or leave it" basis, most franchisors will entertain at least some negotiation of franchise contract terms. This program highlights the key provisions in franchise agreements and the terms most commonly negotiated by franchise parties in forming their relationship from the point of view of the franchisor and franchisee. Our panel will provide guidance to business counsel that identify factors influencing a franchisor's willingness to negotiate and a franchisee's relative negotiating strength. Our panel will then discuss typical negotiating strategies to key contract provisions including term length and renewal rights; fees payable to the franchisor; territorial rights and exclusivity; time frame for development; covenants not to compete; personal guarantees by franchise owners and indemnity obligations; transfer restrictions; the franchisor's right to make future changes to the franchise program; termination; and dispute resolution.