Writing Your Franchise Agreement – Fair But Firm

Chuck Modell August 29th, 2018

New franchisors often come to us with one of two directives; “write an airtight franchise agreement that I can terminate if my franchisees do not do what I want them to do,” or, at the other end of the spectrum, “we want an agreement that is short, fair and neutral.” The best agreements lie in the middle, and for good reason.

The nature of franchising is such that the best franchisors are essentially “benevolent dictators.” Or, as famous boxing referee Judge Mills Lane used to describe himself, “fair but firm.” You have a system you want to replicate at presumably hundreds of locations and you need franchisees to comply with that system. In a world where consumers can tell the entire world about a bad experience with the click of a mouse, when a single franchisee runs a substandard operation, every potential customer in every market can hear about it within minutes. As a result, all the outlets in your system can suffer.

Clear Standards

You therefore need clear standards for your brand and you need to be able to either enforce compliance with those standards or get non-compliant operators out of the system before they destroy your system. You cannot be in a position of waiting until some judge, jury or arbitrator decides whether your policies or standards are “reasonable.” That is not to say that you can enforce your standards at gunpoint, but it does mean that franchise agreements do, by their nature, need to be relatively extensive, and yes, even one-sided in favor of the franchisor in order to give the franchisor the ability to protect its system.

At the other extreme, we have seen agreements that are so one sided that any prospective franchisee foolish enough to sign the agreement would not be a person you want operating your brand. That is why we refrain from including in the agreements we prepare onerous provisions that are simply not necessary to protect the brand or that impose unnecessary costs and burdens on franchisees.

Balancing Act

Putting together an agreement that is fair but firm and extensive but not unnecessarily burdensome is not an easy task. It is often a balancing act, and it is why a “form franchise agreement,” or cookie-cutter approach to developing a franchise program, simply does not work. When you prepare your franchise agreement, or have it prepared for you, you should be working with someone who has seen how agreements work in practice and will meet with you in person to understand you and your concept so that you can mutually develop a franchise agreement that works for your system.