Franchise agreements contain lots of “boilerplate” terms—or at least it seems that way. Once you get past the royalty fees, territory provisions and renewal rights, most franchise agreements look more or less the same. Even so, these “boilerplate” terms are extremely important. If your franchise lawyer overlooks them, you could end up unknowingly agreeing to some heavily one-sided provisions.
7 Common “Boilerplate” Terms in Franchise Agreements
Here is a look at seven common “boilerplate” franchise agreement terms and the risks they present for franchisees:
Indemnification clauses are used to shift liability from one party to another. As you might expect, franchisors try to shift as much liability to their franchisees as possible. While this is reasonable to an extent, many franchisors overreach, and franchisees who aren’t careful can end up accepting far more liability exposure than they should.
The integration clause in your franchise agreement might insulate your franchisor from some claims related to any representations the franchisor’s representatives may have made before you signed the agreement. Many times, the franchise agreement is the sole source of your legal rights, and you are not entitled to rely on anything you may have been told previously.
3. Applicable Law
Some states’ laws are much more favorable to franchisors than others. As a result, the “Applicable Law” or “Governing Law” clause in your franchise agreement could have a significant impact on your legal rights.
4. Dispute Resolution
Many franchise agreements include terms for mandatory arbitration or mediation. If your franchise agreement contains a mandatory arbitration or mediation clause (or both), then you will need to pursue this route (at your expense) prior to—or potentially in lieu of—asserting your legal rights in court.
Venue clauses commonly require all disputes to be submitted to arbitration, mediation or litigation in the city where the franchisor’s headquarters are located. If this is far away from where you will be operating your franchise, this will add to the costs of asserting (or defending against) any potential claims.
Franchisors will often insert waiver provisions into the “boilerplate” section of their franchise agreement. Two common examples include:
- Waiver of Jury Trial – If you take your franchisor to court, you will have to present your case to a judge instead of a jury.
- Waiver of Punitive Damages – In any dispute, your franchisor will not face the risk of being held liable for punitive damages.
7. Force Majeure
The importance of force majeure clauses came into sharp focus during the COVID-19 pandemic. Depending on the language of your franchise agreement’s force majeure clause, it could provide you with critical protection in the event of unforeseen economic circumstances, or it could leave you unprotected if you are unable to operate a successful franchise due to factors beyond your control.
Buying a Franchise? Get Help from National Franchise Lawyer Jeffrey M. Goldstein
If you are thinking about buying a franchise, it is extremely important that you hire an experienced franchise lawyer to review your agreement. For a free initial consultation with national franchise lawyer Jeffrey M. Goldstein, call 202-293-3947 or inquire online today.