Jul 15, 2016 - Blog by |

When evaluating a new franchise opportunity, there are plenty of considerations to keep in mind. What is the best location? Will you need to hire employees? If so, how can you find people you can trust? How and when will you roll out your initial advertising campaign?

Amidst the excitement and practicalities involved in opening a franchised business, it is easy to want to jump ahead. Unfortunately, for some franchisees, this means overlooking a key step: hiring an experienced franchise attorney to review and help you understand the franchise agreement.

The Importance of Negotiating with Your Franchisor

When prospective franchisees decide not to hire an attorney, there are usually a couple of reasons why. First, they assume that the franchise agreement is non-negotiable. Or, even if it is negotiable, they do not want to “get off on the wrong foot” by getting into legal negotiations with their new franchisor. Second, they assume that all franchise agreements are the same. They are set on getting into the world of franchising, and they take for granted that submitting to the terms of a franchisor-friendly contract is just part of the process.

However, the truth of the matter is that franchisees can (and should) negotiate their franchise agreements, and franchise agreement terms can vary widely from one system to the next. Quality franchisors should be open to – and even expect – reasonable negotiations, and in many cases negotiations will simply focus on clarifying ambiguities and bringing the terms of the agreement up to industry standard. As a result, if you do not hire an attorney to advise you and negotiate on your behalf, you could very well end up in a worse position than other franchisees in the system.

Risks of Blindly Entering Into a Franchise Agreement

To illustrate, here are some common pitfalls that can result from not hiring a franchise attorney to conduct a comprehensive franchise agreement review and negotiate with your franchisor:

  • Limited “Right” to Renew – Franchisors like to retain maximum flexibility, and this often means limiting franchisees’ rights to renew. Even if you have a renewal right, it is likely subject to so many one-sided conditions that it is hardly a “right” at all.
  • No Protection from Costly Upgrades – Your franchise agreement likely requires you to comply with the franchisor’s Operations Manual and update your franchised outlet upon request. This will be at your expense, with no cap on the costs your franchisor can force you to incur.
  • Ambiguous (or Missing) Legal Protections – While franchise agreements contain plenty of clear legal protections for franchisors, the protections franchisors voluntarily offer their franchisees are few and far between. You want to make sure your agreement contains appropriate protections with no room for interpretation.
  • Restrictions on PostFranchise Business Ownership – When your franchise agreement ends, what will you do? Your agreement most likely contains competitive and other restrictions that will limit the options you have available.

Of course, this is just a small sampling. For more information on the risks of signing a franchise agreement without legal representation, you can read: Top Ten Worst Provisions in a Franchise Agreement.

Jeffrey M. Goldstein | Franchise Lawyer Representing Franchisees Nationwide

Franchise lawyer Jeffrey M. Goldstein has over 30 years of experience advising prospective franchisees and negotiating with franchisors. If you are considering a new franchise opportunity, call the Goldstein Law Firm at (202) 293-3947 or contact us online to learn more about our fixed-fee franchise review services today.

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