Franchisees
Why & How to Hire a Franchise Lawyer
Your investment in a franchise will be huge. You will likely invest a great deal of money and time. You will also be entering into a relationship with a business partner which is intended to continue for years and years. For many franchisees, it is the biggest business deal of their lives.
Don't you want to fully understand the terms of the deal? And possibly negotiate better terms?
That's where an experienced franchise lawyer comes in.
Help with the FDD
All franchisors are required by the Federal Trade Commission to provide prospective franchisees with a Franchise Disclosure Document (FDD). This lengthy and detailed document is basically a disclosure statement. It contains the particulars of the franchise and the terms for you to obtain one of their franchises.
An experienced franchise lawyer can help you review and interpret the FDD. He can:
- help you understand this very thick document
- help you spot red flags
- help you formulate questions to better understand the franchise opportunity
Help with the Franchise Agreement
The franchise agreement is the actual contract between you and your franchisor. This agreement is the document which formally describes all of the parties rights and obligations.
Frankly, the franchise agreement tends to be very slanted to protect the rights of the franchisor. After all, the franchise agreement was written by the franchisor's attorneys.
An experienced franchise attorney can help you (a) understand the franchise agreement, (b) compare the terms to other franchise agreements, and (c) negotiate better terms.
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Understanding the Franchise Agreement
Franchise agreements tend to be very lengthy legal documents, containing complicated terms and provisions. You need to understand the deal you are signing. An experienced franchise attorney can help you understand various terms and their significance, such as:
- Transfer Restrictions/Conditions
- Arbitration & Dispute Resolution
- Audit Rights & Expenses
- Rights to Intellectual Property
- Supervision & Time Devotion
- Insurance
- Guaranties
- Rights & Remedies Regarding Default
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Comparing Terms to Other Franchise Agreements
An experienced franchise attorney has seen hundreds of franchise agreements. He can tell you whether the terms in your particular franchise agreement are common, or whether they are unusual.
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Negotiating Terms of the Franchise Agreement
We often hear clients say: “The franchisor said that the franchise agreement is non-negotiable.” We usually find that is NOT the case.
While franchisors usually won't change certain types of terms (like the amount of the initial fees, or the amount of royalties), they may be willing to modify others.
In our experience, successful negotiation depends on various factors, including:
- the explanation of your underlying concern;
- the reasonableness of your position; and
- the clarity of your counter-proposal.
An experienced franchise lawyer can help you negotiate important terms, like:
- Territorial Protection
- Transfer of Ownership
- Renewal
- Indemnification
- Audit Expenses
- Non-Competition
Choosing your Franchise Lawyer
Not every business lawyer has experience in franchising.
Franchise law is a unique. It involves special federal laws. In some cases, it also involves special state laws. It involves a unique culture, with its own unofficial norms and standards.
So, you want to make sure that your lawyer has the expertise and experience to actually provide the help you need.
Now the harder part. How can you tell if a lawyer has the expertise and experience you want?
A good, old-fashioned interview should be part of your process. We recommend that you ask the following types of questions:
- How many FDDs/Franchise Agreements have you reviewed? Negotiated?
- Give me the names of some of the franchises you've worked on?
- Do you lecture and/or write about franchise issues?
- If yes, where, when, to whom?
- Have you represented clients in franchise lawsuits? In franchise arbitrations?
- If yes, how many? In Texas? Where else?
- Have you ever helped a franchisee sell/transfer their franchise?
- If yes, give some examples.
At Dickinson & Wheelock P.C., we also think your franchise lawyer should be able to serve as your company's “general counsel” on other business matters. So, ask the lawyer:
- Can you help me form my legal entity?
- How many entities have you formed?
- Can you help me review and negotiate my lease?
- What's your experience in leases for franchisees?
- Can you help with employee issues?
- What's your experience?
- Do you have your own business experience?
- If yes, tell me about it.
- If I have disputes, will you be able to help me?
- What experience do you have in litigation? In arbitration?
When you ask these questions, listen to the answer. But also listen to the way that the lawyer answers. Not only should you be looking for a lawyer with the right kind of experience, you should be looking for a lawyer that you trust.
Help with Other Business Matters
Hopefully, your franchisor will be very helpful in many aspects of your new business. But, you're still going to need help with various legal matters in starting your franchise. (Indeed, many franchisors recommend that you obtain your own attorney to assist you.) For example, an experienced franchise lawyer can help you:
- create a new business entity (e.g. c-corporation, s-corporation, limited liability company, limited partnership) to shield your assets;
- establish ownership agreements;
- review and negotiate leases;
- contract with key employees;
- advise you on other legal business issues.