The Business Law Blog

Featured Post

Should You Hire A Lawyer To Review Your FDD and Franchise Agreement?

Should You Hire A Lawyer To Review Your FDD and Franchise Agreement?

It could be the opportunity of a lifetime. You’ve done your own due diligence and you’ve decided that becoming a franchisee just makes sense. You’re a fan of the franchise and you believe in the product you will be providing – after your own assessment, the numbers check out, too. The discussions you’ve had with the franchisor have now escalated to action. What happens next?

FDD Negotiation

The franchisor is going to provide you with hundreds of pages to review in the form of a Franchise Document Disclosure (FDD). This FDD is a required disclosure that will contain 23 key items about the franchise, including the franchise background, required fees and royalty rates for franchising, information about the company’s executives, and so on.

Of course, all of this information is important (hence, the fact that it is a required disclosure), but more relevant to this discussion are some key contract terms in FDD and the franchise agreement that will likely be an attachment to the FDD. This is where an attorney becomes important.

Many initial franchisees are under the impression that franchise contracts are non-negotiable. After all, the franchisor has all of the leverage and power, correct? Not entirely. From a business standpoint, franchisees provide a lot of value to a franchisor. As a result, many franchisor’s are willing to work with potential franchisees to get the deal through. An attorney will help you to identify the areas of the FDD and franchise agreement where a franchisor may be willing to negotiate.

Contractual Facelifts

Once your lawyer reviews the FDD, she will undoubtedly have changes to suggest. It is likely that many of your attorney’s comments will focus on the vague or ambiguous language that could cause problems down the road. What is “reasonable” cause? What is “timely” notice? Your attorney will recognize areas that are likely to give rise to future disputes, and she will assist you in making sure clarifications find their way into the contract terms. Moreover, your franchise attorney will be able to identify excessive limitations on your legal rights, such as when and how your can seek legal recourse against your franchisor, and what types of recourse you are able to seek, and she will stand in your corner to ensure that your contract is fair, if not favorable.

Exclusivity

Additional franchisees equals additional revenue for your franchisor, however, it may not be good news for your location. As a franchisee, you may suffer from a decrease in customers every time another franchise location opens nearby. While this may be addressed in an FDD, such as by recognizing that franchise policy is for a franchisor to keep distance between franchise locations, policies are subject to change. Ideally, you will negotiate for a contractual guarantee that your territory will be exclusive to you only. If not for outright geographic exclusivity, you may be able to compromise for exclusivity in your area on condition that you maintain a certain performance level at your location, or you may be able to negotiate for a right of first refusal if the franchisor does decide to open a nearby store.

Termination

Your FDD and franchise agreement will address all of the reasons why a franchisor may terminate their contract with you. Typically, these reasons will include failure to pay royalties, failure to comply with franchise rules, excessive customer complaints, and poor sales. Vague and unclear language (as discussed above) gives your franchisor a lot of leeway to determine when termination is appropriate. We’ve seen franchisees get blindsided by getting shutdown by the franchisor due to one or more of these points, a major one being lower sales. Work with your attorney to set out clear standards and to negotiate for greater leniency from your franchisor.

The Benefit of Trust

Your attorney will not only be able to help with reviewing and negotiating your FDD and franchise agreement, she will also act as your sounding board and advisor. Becoming a franchisee is a big decision, and it doesn’t hurt to have an extra set of eyes to see what you were unable to see. Not only should you seek an attorney who has relevant knowledge and experience to review your FDD and franchise agreement, but who has your best interests in mind, as well.

Latest Posts

Why an Employment Agreement Is Crucial

In an ideal world, employment relationships would be non-contentious. In reality, what began as an amicable arrangement all too often devolves into disagreements and disputes. The best way to protect yourself from potential future conflicts is to enter into an...

read more

Meet Sal Mughal, Founder of KSMK Group

Meet This Month's Hot Entrepreneur! Meet Sal Mughal, founder of KSMK Group, a top contract manufacturer of nutraceutical products like vitamins and sports supplements. KSMK prides itself on two things, taking special care of their customers and creating the most...

read more

Should You Form Your Corporation in New York or Delaware

Incorporation is an exciting step for any up-and-coming business. One of the first questions many New York companies ask is whether they should incorporate in New York or Delaware. Chances are you’ve heard there are advantages to incorporating in Delaware, but you’re...

read more

How to Get Paid By Non-Paying Clients

Managing to turn your passion into a business in no small feat. While it may be tempting to relax a bit once you’ve started landing clients, the reality is your job has just begun. After all, we all know that making money is crucial to the success of your business....

read more

Factors That Can Impact Your Choice of Entity

So your business is no longer just a hobby but an actual, ongoing moneymaking venture. Congratulations! But you’ve got some homework: deciding what type of business entity you would like to form under your state’s business laws. “Wait, what if I’m not ready or even...

read more

Build Your Vision Today

Some clients are born great, some achieve greatness, and some have greatness thrust upon them. Whichever you are, we’re here to help you continue the greatness.

FREE STRATEGY SESSIONBook A Free Strategy Session

Logo Header Menu