Nov 23, 2020

Buying a master franchise is a very different proposition from buying a single-unit franchise—or even entering into an area development agreement.  As a master franchisee, not only might you be tasked with opening one or more franchised outlets of your own, but you will also be responsible for selling franchises and managing independent franchisees within your master franchise territory. As a result, buying a master franchise involves legal risks above and beyond those involved with buying an individual franchise or the right to develop a particular geographic area on your own. Some examples of these legal risks include: FTC Rule and State Franchise Law Compliance As a master franchisee (also referred to as a “sub-franchisor”), you will be selling franchises in your territory. This means that you will take on the disclosure obligations of a franchisor, and you will be at risk of facing liability due to disclosure violations. Your franchisor will most likely provide you with a Franchise Disclosure Document (FDD) to use in your territory; and, if it does, you should be able to seek indemnification in the event that you are held liable as the result of an issue with the FDD. However, there is also a very good chance that this is a protection that you will need to seek to negotiate into your master franchise agreement. Master Franchise Agreement Compliance Speaking of the master franchise agreement, the terms of your master franchise agreement will be very different from the terms of any franchise agreements you […]

Jan 3, 2020

There are a number of obvious risks involved in buying a franchise: Your business could fail. You could lose your investment. You could end up in litigation with your franchisor. But, along with these risks, there are a number of hidden risks as well. As a prospective franchisee, here are five important legal considerations to keep in mind: 1. The Franchisor Could Be Facing Bankruptcy or Costly Litigation. When you looked at your franchisor’s Franchise Disclosure Document (FDD), did you spend much time looking at Items 3 and 4? Probably not. These early Items are frequently overlooked, but they can provide critical insights into a franchisor’s solvency and financial stability. If your franchisor files for bankruptcy or incurs a substantial judgment in litigation, this could have devastating consequences for the franchise system as a whole. Unlikely as this may be, it is not a risk to be ignored completely. 2. The Franchisor’s Principal Trademark Could be in Jeopardy. If you are like most franchisees, one of your primary considerations in choosing a franchise was the recognizability of the franchisor’s brand. In legal terms, a brand is known as a “trademark,” and franchisors can lose their trademark rights under a variety of different circumstances. Ideally, your franchisor should have its principal trademarks registered with the U.S. Patent and Trademark Office, and it should be actively monitoring and enforcing its trademark rights. If your franchisor’s trademarks lose their exclusivity, you could lose the right to use them as well. 3. Your Territorial […]

Apr 12, 2019

When buying a franchise, you need to make several important decisions that can have lasting implications for you and your business. Among them is the decision of whether or not to hire a franchise attorney. With all of the startup costs involved, hiring a lawyer to review the Franchise Disclosure Document (FDD) and franchise agreement may seem like one area where you can save some money (after all, aren’t you just going to end up signing the franchise agreement anyway?). But, while this is a choice some prospective franchisees make, their decision is usually based on a lack of understanding of the services an experienced franchise attorney can provide. 5 Risks of Signing a Franchise Agreement Without Legal Advice Along with numerous other ways an experienced franchise attorney can help you make an informed buying decision, here are five key risks your attorney will be able to help you avoid: 1. Not Knowing What You are Signing Buying a franchise is a long-term investment, and a franchise agreement is a long-term, legally-binding contract. Once you sign, you are bound to comply, and the odds are that you do not have a way out that does not involve incurring substantial financial liability to the franchisor. Before you sign, you need to know what you are signing, and you need to make sure you are comfortable with the legal and financial risks involved. 2. Not Negotiating One-Sided Provisions of the Franchise Agreement Franchise agreements are almost universally heavily one-sided in favor of […]

Sep 7, 2018

When buying a franchise, you need to make a number of important decisions. One of these decisions is: Should you buy into a well-established franchise system; or, should you get in on the ground floor of an up-and-coming franchised brand? Both options offer potential benefits. While buying into a well-known franchise can offer instant brand recognition, buying into a new franchise system can reduce the risk of territorial encroachment and intra-brand competition.  Established franchisors offer experience, while new franchisors may offer fresh ideas and a more-contemporary approach to doing business. Should You Buy into an Up-and-Coming Franchise? But, both options come with potential drawbacks as well. Here are five risks associated with choosing a new franchise system: 1. Lack of Franchising Experience Franchising is a unique business model, and not everyone who succeeds in building a retail brand will be successful operating as a franchisor. When you are relying on a franchisor for guidance and operational support, it can be challenging to work with executives and personnel who are not experienced in managing a franchise system. 2. Lack of Brand Recognition In most cases, one of the primary benefits of buying a franchise is to benefit from the franchisor’s brand recognition. Instead of promoting a new brand that no one has ever heard of, you get to benefit instantly from the goodwill that the franchisor has cultivated over years of consistent marketing and providing quality service to its clients or customers. But, if you will be the first franchisee in […]

Mar 22, 2024

The pet industry is booming. As recently stated in an industry report on Franchise Direct, “People LOVE their pets—and they’re spending the money to prove it.” But does this mean that you should buy a pet franchise in 2024? Here are some key considerations from franchisee attorney Jeffrey M. Goldstein.

Feb 29, 2024

As a franchisee, it’s important to know when it’s time to take legal action. While pursuing mediation or arbitration might be the last thing you want to do, when filing a claim is your best option, you need to be willing to do what is necessary to protect your investment. So, when should you file for mediation or arbitration against your franchisor? Find out from franchisee lawyer Jeffrey M. Goldstein.

Jan 31, 2024

Artificial intelligence (AI) is officially here. In 2024, we anticipate that franchisors in a wide range of industries will seek to adopt AI technologies in various capacities—whether they fully understand AI’s capabilities and implications or not. Some franchisors are also turning to robots to streamline their operations, and this is a trend that we expect to see continue throughout the year as well.

Dec 22, 2023

When you are going through the process of buying a franchise, it is critical to review the franchise agreement. Not only will the franchise agreement govern your relationship with your franchisor, but it will also dictate what happens if something goes wrong. Will you be required to use designated suppliers (even if you can find lower prices elsewhere)? What will you need to do in order to renew? Will you be required to arbitrate in the franchisor’s home state in the event of a dispute? Will you be liable for liquidated damages if the relationship ends prematurely?

Dec 15, 2023

So, you’re thinking about buying a franchise in 2024. What do you need to know? Buying a franchise is a major investment with significant legal financial implications—so it is critical that you make an informed buying decision. Here are some key insights from franchise attorney Jeffrey M. Goldstein.

Jul 31, 2023

Like all industries, franchisor-franchisee relationships in the hotel industry often lead to disputes. Franchisors often over-promise and under-deliver, and franchisees often find themselves struggling to remain solvent due to factors beyond their control.