A prospective franchisee wants me to send his attorney a copy of the franchise agreement in Word. Should I?
I avoid sending franchise agreements in Word. I prefer to send them in PDF, to help me control the negotiation process. Here’s why.
A franchisor client sent its franchise agreement to a prospect’s attorney in Word. The attorney revised the agreement and sent it back to my client. When my client sent it to the attorney, the franchise agreement had been 64 pages. By the time the other attorney finished, it was 18 pages. Among other things:
- The attorney deleted all provisions dealing with the royalty (“We don’t want to pay a royalty, so we took out all the provisions dealing with it.”)
- He deleted all provisions dealing with the franchisor’s right to terminate for breach of the franchise agreement (“We aren’t going to do any of those things anyway.”)
In a different transaction, the opposite occurred. The franchise agreement started at 67 pages. When the other attorney sent it back, it had grown to 110 pages. The attorney had told his paralegal to revise it and to “make everything reciprocal.” She did exactly what she was told. As a result, among other things, the revised version said:
- The franchisee would pay the franchisor an initial franchise fee, and the franchisor would pay the franchisee the same initial franchise fee.
- The franchisor would grant the franchisee a franchise, and the franchisee would grant the franchisor the same franchise.
In both of these extremes, the franchisee wasted time and money on legal work that was worthless. It also cost the franchisor time and money. We had to review what the prospect’s attorney had done, and then educate the prospect’s attorney on franchising and the limits of what the franchisor could do. We also had to negotiate the prospect and its attorney out of provisions the attorney had put in writing, and back into realistic provisions.
Here’s the point. I understand the desire of the prospect’s attorney to mark up a Word document. However, the best way to handle a negotiation is to communicate. Sending markups back and forth isn’t communicating: it’s staking out positions. It adds time, complexity, and cost to the process. It risks bad feelings. That’s why I advise prospective franchisees and their attorneys to review the franchise agreement in PDF, make notes about their concerns, and get on the phone with us to talk them through.