If you are considering the purchase of a franchise, what is the value in hiring a franchise attorney? Purchasing a franchise is an extensive, and sometimes overwhelming, process that covers business, financial and legal issues. Since a franchise is typically a significant investment and long-term commitment, you are well advised to work with professional advisors along the way. So why should you hire a franchise attorney?
Understanding Legal Documents
By law, franchisors are required to prepare and deliver to you a Franchise Disclosure Document, a legal document containing disclosures mandated by federal and state franchise laws. Franchise disclosure laws were passed for the protection of prospective purchasers of franchises to make sure there were given information important to the decision of whether to purchase a franchise. One exhibit in the Franchise Disclosure Document is the Franchise Agreement, which is the binding contract between the franchisor and the franchisee.
Despite the fact that franchisors are directed to prepare the Franchise Disclosure Document in plain English, these are legal documents that can be difficult to read and understand for non-lawyers or those not familiar with franchising. A franchise attorney who is intimately familiar with franchise legal documents can help guide you and give you a greater understanding of your rights and obligations once you sign a franchise agreement. The franchise attorney can also point out to you finer points within the agreement that are not typical provisions or are unnecessarily onerous, or points that you may otherwise overlook that could have a significant financial impact on your business or which could significantly limit your options for employment or other career choices if the relationship does not work out.
Providing Suggestions for Additional Investigation
Also, franchise attorneys who are familiar with the contents of a typical Franchise Disclosure Document and have reviewed many of them and/or draft them for franchisor clients, can pick out red flags or possible concerns or issues to bring to your attention for further review and investigation. These could include issues relating to the franchisor organization, litigation brought against the franchisor, initial costs and ongoing fees, purchasing restrictions, lack of territorial protection, covenants not to compete, events that could cause you to lose your franchise, financial performance representations, and franchisee turnover. In reviewing the legal documents, an experienced franchise attorney will raise questions for you to go back and ask the franchisor and questions you want to have answered directly by existing franchisees. The broader your investigation of the franchise purchase, the more likely you will make an informed decision about the franchise purchase.
Negotiating Changes to the Franchise Agreement
If the franchisor has informed you that no changes can be made to the franchise agreement, why do you need an attorney to review the agreement? First of all, many franchisors are amenable to making some changes to the franchise agreement reasonably requested by a prospective franchisee. An experienced franchise attorney can guide you as to what types of requested changes are reasonable to request in the context of franchising.
Reasonable negotiated changes may include (1) those relating to your particular circumstances or situation, (2) documenting promises made to you that were not included in the standard franchise agreement and (3) changes that will make the agreement more fair to you but that will not jeopardize the franchisor’s need to protect the entire franchise system.
However, even if the franchisor ultimately will not make any revisions or additions to the franchise agreement as you request, by working with a franchise attorney, you will have a greater understanding of the terms of the contract in order to assess the risks of purchasing the franchise before you sign the contract.