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When Can a Franchisor Negotiate their Agreement with a Franchisee?

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The franchisor may negotiate with a prospect, subject to the limitations discussed below.

The information and exhibits in the franchisor's FDD must reflect the franchisor's actual initial offer to a prospect. If, based on changing conditions or other factors, the franchisor has decided to change it initial offer, for example, by increasing its initial fee from $25,000 to $30,000, it must amend its FDD before furnishing the FDD to a prospect. It may not furnish a FDD with a $25,000 initial fee and tell the prospect that the initial fee is actually $30,000, in effect "negotiating up" from what is offered in the FDD. Similarly, if the franchisor has decided to decrease its initial and royalty fees, it must amend its FDD to reflect the changes and its actual initial offer to a prospect, even though the changes favor the prospect.

A prospect may initiate negotiations with the franchisor before or after receiving the franchisor's FDD. In response, the franchisor may refuse to negotiate (except in Virginia, as discussed below), or may negotiate or indicate a willingness to negotiate. Negotiation may be about any matter, and may continue until the prospect signs final agreements.

Negotiated changes made as a result of negotiations initiated by the prospect do not trigger the 7-calendar-day waiting period for final agreements. If the prospect negotiates additional changes during any 7-calendar-day waiting period, the changes do not trigger an additional waiting period.

Give and take is permitted during negotiations. You or the franchi- sor may require the prospect to agree to terms more favorable to the franchisor, or may require the prospect to voluntarily waive terms and conditions, in exchange for agreeing to terms more favorable to the prospect. Under the FTC franchise rule, the prospect must merely be aware of all of the changes.

California is the only state that requires filings, approval and disclosures to later prospects if you or the franchisor negotiate with a prospect. Check with the franchisor's lawyer or compliance manager if you need or want to negotiate with a prospect covered by the California law.

New York requires negotiated changes overall to favor the prospect. This is not a requirement under the FTC franchise rule or an explicit requirement under other state laws. As a practical matter, however, most negotiations result in negotiated changes overall that favor the prospect.

Virginia requires the franchisor to negotiate with the prospect, but does not require the franchisor to agree to any concession requested by the prospect. 

If you would like to know if you can franchise your business, connect with me on LinkedIn and give me a call.

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About this Entry

This page contains a single entry by Warren Lewis published on June 3, 2013 6:16 PM.

Three Permitted Communications with Probable Franchisees was the previous entry in this blog.

Can You Afford to Pay the FTC $100k or Much More? is the next entry in this blog.

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