Apr 29, 2022 - Blog, Franchise Articles by |

There are lots of important factors to consider when buying a franchise. While most prospective franchisees will pour over the numbers and spend hours evaluating potential locations, relatively few give due consideration to the terms of their franchise agreement. As Chicago franchise agreement lawyer Jeffrey M. Goldstein explains, this can prove to be a costly mistake.

Prospective Franchisees Need to Know the Terms of Their Franchise Agreement

As a prospective franchisee, you need to know the terms of your franchise agreement. Not only will your franchise agreement impact virtually all aspects of your operations, but it will also impact your rights upon renewal, transfer and termination. If you do not know what you are signing, there is a very good chance that you will give up important rights and put your assets at risk unnecessarily.

Consider these five commonly overlooked franchise agreement terms:

1. Modification of the Operations Manual

Franchisors incorporate their Operations Manuals into their franchise agreements by reference. What this means is that the terms of the Operations Manual are binding just as if they were written into the franchise agreement itself—even though you don’t get to see the Operations Manual before you sign.

Even worse, franchisors almost universally reserve the right to modify their Operations Manuals “from time to time.” When this happens—which it will—you will be required to comply with your franchisor’s modified system standards at your expense.

2. Territorial Restrictions

Even if you receive a protected or exclusive territory (which may or may not be the case), your franchise agreement will likely include territorial restrictions. For example, there is a good chance that you will be prohibited from advertising outside of your territory. Even if there are no other franchisees around, your franchisor may still want to “reserve” the surrounding areas so that they remain attractive to new prospective franchisees.

3. Conditions for Renewal

Franchise agreements routinely impose several conditions for renewal. If you do not satisfy all of the renewal conditions (as judged by your franchisor), you could lose your franchise at the end of your initial term.

4. Default and Termination

Franchise agreements’ default and termination clauses are almost always heavily one-sided. Before you sign a franchise agreement, it is imperative that you have a clear understanding of the issues that can lead to the loss of your franchise rights. If your franchise agreement is too one-sided you may need to negotiate the terms prior to moving forward.

5. Post-Termination Covenants

It is critically important that you understand your franchise agreement’s post-termination covenants as well. These are the terms that will continue to apply after your franchise is over. It is fairly standard for franchisors to impose non-solicitation and non-competition covenants (which are often extremely broad), and many franchisors will seek to hold their terminated franchisees responsible for “lost future royalties.”

Discuss Your Franchise Opportunity with Chicago Franchise Agreement Lawyer Jeffrey M. Goldstein

If you are thinking about buying a franchise in Chicago, we encourage you to contact us for more information. To discuss your franchise opportunity with Chicago franchise agreement lawyer Jeffrey M. Goldstein in confidence, please call 202-293-3947 or request a free consultation online today.

Lawyer USA

Complex Commercial Litigation Law Firm of the Year – USA

Lawyer USA

Complex Commercial Distribution Litigation Representative

Lawyer USA

Antitrust & Franchise Law Firm of the Year – Washington DC

Lawyer USA

Best Franchise Lawyer of the Year – New York

Lawyer USA

Best for Franchise Disputes – USA

Lawyer USA

Complex Commercial Litigation Law (Franchisees and Dealers) 2021 – USA

Lawyer USA

Antitrust and Franchise Law Firm of the Year in DC

Lawyer USA

Leading Professionals in Law

Lawyer USA

Franchise Law
in the District of Columbia

Lawyer USA

Franchise Law Firm
of the Year – USA

Lawyer International

Lawyer International
Legal 100
2018

Lawyer International

Lawyer International
Legal 100
2019

ACQ5 LAW AWARDS 2019

US (New York)
Franchise Lawyer
of the Year
ACQ5 GLOBAL AWARDS 2019, JEFF GOLDSTEIN, GOLDSTEIN LAW FIRM, PLLC

ACQ5 LAW AWARDS 2019

US (New York)
Franchise Law Firm
of the Year
ACQ5 GLOBAL AWARDS 2019, GOLDSTEIN LAW FIRM, PLLC

Lawyers of Distinction logo

2020 Power Lawyers

Esteemed Lawyers of America Logo

Esteemed Law Firm Complex Litigation

Global Law Experts Logo

Recommended Firm in Franchise Litigation

Who's Who Attorney Logo

Top Attorney USA – Litigation

Avvo Franchise Lawyer Symbol

Superior Attorney in Franchising

Avvo Franchise Lawyer Symbol

Superior Attorney in Antitrust

Finance Monthly Global Award Winner Logo

Franchise Law Firm of the Year

Lead Counsel logo

Chosen Law Firm for Commercial Litigation

BBB of Washington DC

A+ Rated

Washington DC Chamber of Commerce

Verified Member

Lawyers of Distinction logo

Franchise Law Firm of the Year

ISSUU

Best Law Firm for Franchise Disputes in 2017

Law Awards Finanace Monthly

Franchise Law Firm of the Year - 2017

Top Franchise Litigator for Franchisees and Dealers

Top Franchise Litigator for Franchisees and Dealers

2017 Finance Monthly Award

2017 Finance Monthly Award

ACQ5 LAW AWARDS 2018

Franchise Law Firm
of the Year
ACQ5 LAW AWARDS 2018

ACQ5 LAW AWARDS 2019

Franchise Law Firm
of the Year
ACQ5 LAW AWARDS 2019

Franchise Law Firm of the Year

Franchise Law Firm of the Year

Franchise Law Firm of the Year

Franchise Law Firm of the Year
Global Awards 2017

Global Law Experts

Franchise Law Firm
of the Year
in New York – 2019

Finance Monthly Law Awards - 2018

Finance Monthly Law Awards - 2018

Franchise Law Firm of the Year

Franchise Law Firm
of the Year
Global Awards 2018

Contact Us

Goldstein Law Firm, PLLC

1629 K St. NW, Suite 300,
Washington, DC 20006

Phone: 202-293-3947
Fax: 202-315-2514

Free Consultation

Downtown Chicago Office

30 South Wacker Drive 22nd Floor #3341,
Chicago, IL 60606

Phone: 312-382-8327

Free Consultation

Free Consultation