If you are thinking about buying a franchise, you have probably been told that you should speak with a franchise attorney. You have probably been told that a franchise attorney can help you understand the Franchise Disclosure Document (FDD) and maybe even help negotiate your franchise agreement. But, there are a number of other ways that a franchise attorney can help you during the buying process as well, including: 1. Comparing Your Chosen Franchise Opportunity to Competing Franchises When buying a franchise, most of the information you obtain about the franchise will come from the franchisor. You can (and should) speak to current and former franchisees during the due diligence process as well; but, even then, you are still only gathering information about the specific franchise you have selected. An experienced franchise attorney will be able to access competing franchise systems’ FDDs and franchise agreements, and use the knowledge gained from representing numerous other clients to help you make an informed decision. 2. Identifying and Evaluating Legal Risks Related to Your Chosen Franchise Opportunity Beyond simply summarizing the key provisions of your FDD and franchise agreement, an experienced franchise attorney will also be able to identify and help you evaluate legal risks that you likely would not be able to spot on your own. For example, while access to proprietary branded products may seem like a good thing, there are also risks involved in committing to the use of third-party products and suppliers. 3. Helping You Form a Limited Liability […]

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All franchise agreements expire. While the goal of buying a franchise is to build a sustainable business that generates profits for years to come, the reality is that many franchisees struggle to recoup their initial investment before their initial term expires. If the initial term of your franchise agreement is about to expire, what do you need to know about renewal? Here are answers to some frequently-asked questions (FAQs): Answers to Frequently-Asked Questions (FAQs) about Franchise Renewal Q: Can my franchisor refuse to renew my franchise agreement? In general, a franchisee’s “right” to renew is subject to a laundry list of conditions set forth in the franchise agreement. If you fail to satisfy any of these conditions by the date your original franchise agreement expires, then your franchisor may refuse to renew your franchise. State franchise laws provide protections against bad-faith refusals to renew in some cases. Q: What do I have to do in order to exercise my right to renew? In order to exercise your “right” to renew, you must satisfy all of the renewal conditions stated in your franchise agreement before your initial term expires. Minimally, this will likely mean curing any outstanding payment deficiencies, updating to current system standards, and signing the franchisor’s “then-current” form of franchise agreement. Q: Will I be required to sign a new franchise agreement in order to renew? In most cases, yes. Franchisors generally include execution of their “then-current” franchise agreement as a condition of renewal. However, while you may be […]

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Hotel chains dominate the hospitality market, and some hotel chains are among the largest and most well-known franchised brands in the world. As a result, many prospective franchisees find the idea of owning a hotel to be a desirable one, and they believe that the substantial up-front investment will more than pay off in the long term. While this is certainly the case for some hotel franchisees, building and operating a successful hotel is a challenge even for the most-seasoned business owners. When you add in the costs and inherent challenges involved in operating under a franchised model, finding success as a hotel franchisee is far from certain. At the Goldstein Law Firm, in addition to representing prospective hotel franchise owners in franchise agreement negotiations, we also have extensive experience representing hotel franchisees in litigation with their franchisors. If you are thinking about buying a hotel franchise, here are some of the key risks to keep in mind: 1. Substantial Initial Investment Although many franchises can be launched with less than $100,000, building or renovating a hotel is generally a multi-million-dollar endeavor. While much of this initial investment is attributable to costs you would incur regardless of whether you were building a franchised or non-franchised hotel, you will still be required to pay a significant up-front initial franchise fee to the franchisor. In any case, before making such a significant investment, it is critical to ensure that you have taken appropriate legal measures to protect yourself as much as possible. […]

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If you signed your franchise agreement without reading it carefully, you might be surprised to learn that your franchisor has a broad right to audit your franchise. Franchisors almost universally reserve this right; and, while audits are ostensibly intended to ensure that franchisees are accurately calculating their royalty fee and marketing fund contribution obligations, franchisors often use them as tools for establishing grounds for default and terminating underperforming or “difficult” franchisees. So, your franchisor has announced that it will be auditing your franchise. What do you need to know? Protecting Your Rights During a Franchise Audit 1. What Does Your Franchise Agreement Say? When faced with an audit, the first thing you should do is review your franchise agreement. What does it say about audits? Are there any restrictions on how frequently your franchisor can audit your franchise or how much advance notice your franchisor must provide? Can your franchisor hire a third-party auditor to inspect your books and records? What is the permissible scope of the audit? 2. Do You Have Anything to Worry About? Assuming your franchisor is within its rights to conduct the audit, your next order of business should be to conduct an internal audit of your own. Is it possible that you could have underreported your gross revenue—could you be at risk for being declared in default of your franchise agreement? If you have any concerns, you should come up with a plan to address them proactively before your franchisor has a chance to send […]

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Buying a franchise is an investment. But, beyond your initial franchise fee (and potentially other startup expenses), as a franchise owner you are likely to incur a number of other ongoing costs that you would not have to pay as an independent business owner as well. So, how much does it really cost to own a franchise? Additional Costs of Franchise Ownership (vs. Owning an Independent Business) The following are all examples of fees and costs that franchisees may be required to pay their franchisors: 1. Initial Franchise Fee The initial franchise fee is an up-front, one-time payment that is typically due at the time of signing or within a specified period of time (such as 30 days) after signing the franchise agreement. Initial franchise fees vary from one franchise system to the next, but are usually somewhere in the range of $15,000 to $30,000. 2. Lease, Branded Products and Other Startup Expenses In some systems, franchisees may be required (or have the option) to lease their facilities from their franchisor, and they may be required to make an initial purchase of branded products and various other mandatory purchases as well. When leasing or purchasing from a franchisor or a designated supplier, it is critical to ensure that you are paying fair market value – which will not always be the case. 3. Royalty Fees Royalty fees are typically calculated as a percentage of the franchisee’s gross revenue, although there are some different royalty structures out there (such as flat […]

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