Consequences of the interaction of standard form and relational contracting in franchising

This article outlines the essential attributes of standard form and relational contracts. It explains why franchise contracts are both standard form and relational, and it argues that the unequal bargaining power and lack of negotiation of the standard form combine with the relational contract's reliance on flexibility and trust to strongly reinforce the existing imbalance of power in the franchise relationship and to increase uncertainty and risk for a franchisee. The scope of the article is limited to the purpose of explaining the implications of the interaction of the standard form and relational contract characteristics; it does not attempt a critique of regulation in any particular jurisdiction. It suggests that the effects of the interaction of the standard form and relational nature of the contract should be acknowledged and addressed at all levels of governance of the relationship. Because this interaction reduces the effectiveness of disclosure, the regulation of the sector should begin with a focus on process rather than on tools in order to ensure the most appropriate measures given the nature of this business form.