San Diego Business Lawyer Blog

There are countless franchise opportunities available to San Diego entrepreneurs.  The majority of these opportunities are offered by out of state franchise companies.  Purchasing and operating a franchise can be a lucrative option for those looking for alternatives to starting a new business from scratch.  Franchises offer economies of scale, proven systems and existing markets.  It is a known quantity that is typically well marketed, often nationally.  These advantages are obvious.  However, franchising is not a guaranty of success.  Much depends on the geographic location of the franchise, the proximity to other franchises, the proximity of similar businesses, the market for the franchises goods or services in the area, the economy and the skill and commitment of the franchisee.  When lucrative, franchises rarely result in conflict and the terms of the franchise agreement seem less important.  When the franchise is not profitable for whatever reason, the terms of the franchise agreement become critical.    

Virtually all franchise agreements include a venue provision wherein any litigation and/or arbitration will be heard in the home state of the franchisor.  For San Diegans, this means somewhere other than California.  This is of course problematic especially for the small businesses with limited resources.  Litigating or arbitrating a case in a distant jurisdiction is more costly and time consuming than it would otherwise be here in San Diego.  In many cases, franchisees are simply priced out of the process and have little recourse but to try and negotiate some sort of reasonable solution with the franchisor in lieu of facing a default judgment and/or bankruptcy.  

Unfortunately for franchisees, it is almost always impossible to negotiate away venue provisions in franchise agreements.   This is particularly true with national chains.  Venue provisions provide the national chains legal consistency, and it's the rare circumstance that they would be willing to give up this important benefit.  Nonetheless, it's important for franchisees to discuss the matter with their business attorney and/or try to negotiate the provision's removal.  Understanding the consequences of the provision better prepares the franchisee should a dispute later arise with the franchisor.  It also provides the franchisee the opportunity to explore other options.  Selecting a franchise located in one's home state is a better option all other factors being equal.  If you are considering the purchase of a franchise, consult a San Diego franchise attorney for assistance.

Continued from Negotiating Power - The Often Neglected Contract Position.

In most cases, the party with the greater bargaining power presents a draft contract to the other and asks them to sign it as is.  The draft will set forth the major contract terms already discussed by the parties such as price, delivery method, term of a lease, etc.  The remaining terms tend to favor the party who prepared the contract.  If you are an entrepreneur looking to capitalize on a new shopping center for your small café, you will have a harder time convincing the landlord to agree to changes in a commercial lease than a national chain that will anchor the center.  

Understanding your bargaining position prepares you for the negotiation process whether or not you are working with an attorney.  If you really want to open your café in the new shopping center, you will want to tread carefully during negotiations.  First, understand your rights and obligations as set forth in the proposed contract.  If you are negotiating without the benefit of legal counsel, consider asking a San Diego contract attorney to at least explain these rights and obligations.  Next, consider those terms you would like to change and prioritize.  What are the most important changes?  Remember, less bargaining power is not zero bargaining power.  By focusing your negotiations on only the most important issues, you preserve leverage.  Direct your discussions to the success of the transaction.  If we change Term X, it will improve both our volumes.  If you keep Term Y in the lease, I will lose significant business.  Stressing the success of the transaction shows that you are focused and professional, and the other side has little choice but to accept it as a valid concern.  Avoid the temptation to play "hard ball" with a party holding all the cards.  Finally, where possible increase you bargaining power by giving yourself alternatives.  No deal should be so important that you are willing to agree to terms destructive to the end goal.  If you are convinced there are no reasonable alternatives, make sure the other side doesn't know the extent of your desire.  

There are of course a myriad of negotiation schemes (too many to address in this short article).  Whatever the scheme, understand and accept your bargaining position and ensure that your attorney does as well.

Because San Diego businesses routinely enter in to contracts with vendors, clients, customers and other partners, it is important that they are familiar with basic contract principles and the need for negotiating favorable contract terms.  This is true whether or not they retain the services of a San Diego contract attorney.  The art of negotiating contracts requires a careful balancing of nuance and tactic.  Contract lawyers must weigh the needs of their clients against the desire for and/or business necessity of the contractual relationship.  The business contract binds the parties to its terms.  It defines the rights and obligations of the parties moving forward and can have far reaching effect, especially where disputes arise.  

In the vast majority of contract negotiations, one side is considerably more concerned about ensuring the success of the agreement.  In such circumstances, the "more concerned" party must decide how much they are willing to give up.  This defines the "more concerned" party's negotiating power.  The more the party is willing to walk away from the agreement, the more power that party has.  Negotiating power is probably the single most important factor in contract negotiation.  It is simultaneously one of the most often overlooked factors.  

The issue of course is not black and white.  The mere fact that one side has more negotiating power than the other does not necessarily mean that no negotiation is possible - although clearly this is the case sometimes.  The key is to recognize your negotiation power and leverage it to its fullest with skill, tact, bluff and perhaps a tad bit of humbleness.  Humbleness may seem counter-intuitive to some, especially attorneys, but it can and should make up at least a small part of your negotiation tactics.  No matter how hard seasoned attorneys and negotiators work to dehumanize the negotiation process, it is still conducted by people.  A soft touch often disarms even the most purposeful intent.

Continued in The Importance of Negotiating Power - Part Two.