Mark Pestronk
Q: A well-known consortium of travel agencies would like to have my agency as a member. The consortium has a standard contract that appears to be very one-sided. What are the typical terms that are negotiable in such contracts, and what changes should I ask for? As an alternative, we are considering becoming a franchisee of a well-known agency franchisor. What are the typically negotiable terms in franchise agreements for agencies?
A: In my experience, most agencies do not even try to negotiate terms for consortium or franchise agreements. Those that try to do so are mostly unsuccessful.
If you request changes, you will typically be told that it is the policy of the organization to have the same contract for all members. If you don't buy that argument, you may be told that the organization is legally required to have the same contract for everybody.
Don't believe it. If the consortium or franchise wants you badly enough, it will agree to changes. However, you may need to ask several times and refuse to take no for an answer.
Here are some typical, key terms that some of my clients have been able to get changed:
• If the organization offers a well-known name that you can use as part of your agency name, you can try to get exclusivity in your city, or at least your side of town. If the organization offers only informal assurances that it has no plans to enter into agreements with others in your area, remember that such assurances are not legally enforceable. Get a definite commitment in the contract.
• If the organization or an affiliate competes with your travel agency, then what you disclose to the organization as part of normal operating procedure could be used to compete for your clients. Try to prohibit the organization from using your information for such purposes or get the affiliate to agree that it won't solicit your clients, or both.
• Almost all such agreements have a fixed term of years, and you cannot drop out without paying a substantial penalty, such as all of the remaining monthly payments for the entire term. You can often successfully request a clause stating that after a fixed period, such as six months or a year, you can drop out if you are not satisfied with the benefits of affiliation with the organization.
• All franchise and consortium contracts that I have seen prohibit you from assigning the contract to a buyer without the organization's consent, but there is no mutuality: The organization may freely assign your agreement if the franchisor or consortium is sold, merged or reorganized. You may be successful in getting the right to terminate if that happens.
• Some such agreements unfairly provide that if you leave the organization for any reason, you are no longer entitled to commissions or overrides for transactions before termination. You may be able to provide that this forfeiture does not apply if you terminate because of the organization's breach.
• Try to eliminate any provision that gives the organization a right of first refusal to acquire your agency in case you get an offer from a third party.