Oct 3, 2016

This is Part 3 of our three-part series, Understanding Your Franchisor’s FDD. Here, we cover some of the highlights of Items 15 through 23. For our discussion of Items 1 through 14, you can read: Understanding Your Franchisor’s FDD – Part 1 (Items 1 through 7) Understanding Your Franchisor’s FDD – Part 2 (Items 8 through 14) Item 15: Obligation to Participate in the Actual Operation of the Franchise Business What You’ll Find Any restrictions the franchisor imposes regarding who can take responsibility for the day-to-day operation of the franchised business. Why You Care While some franchisors do not require their franchisees to have direct involvement in their outlets’ day-to-day operations, others do. If your franchisor requires direct, “on-premises” supervision, this is certainly something you will want to know (especially if you are looking for a multi-unit opportunity). Item 16: Restrictions on What the Franchisee May Sell What You’ll Find Any requirements to sell only approved goods or services, as well as any requirements to sell all goods or services authorized for sale at franchised outlets. Why You Care If your franchisor limits your inventory or service offerings, this is something that you will need to take into consideration when evaluating the financial potential of your franchise. Likewise, if your franchisor requires you to carry all approved products, is this going to leave you paying for inventory that just ends up going to waste? Item 17: Renewal, Termination, Transfer, and Dispute Resolution What You’ll Find A table that identifies where […]

Sep 29, 2016

This is Part 2 of our three-part series, Understanding Your Franchisor’s FDD. In Part 1, we covered Items 1 through 7. Here in Part 2, we cover Items 8 through 14: Item 8: Restrictions on Sources of Products and Services What You’ll Find In Item 8, franchisors are required to disclose any obligations for franchisees to purchase or lease necessary products or services either (i) from the franchisor, (ii) from a designated or approved supplier, or (iii) according to mandatory specifications. This includes: Supplies, fixtures and equipment Inventory Computer hardware or software (including POS systems) Real estate Any “comparable items related to establishing or operating the franchised business” Why You Care Purchasing controls can often mean higher purchasing prices for franchisees. When a franchisor negotiates a volume rebate with a supplier, this does not necessarily mean that savings get passed on to the franchisees. In fact, instead it can simply mean that franchisees lose the ability to shop for competitive pricing. Item 9: Franchisee’s Obligations What You’ll Find Item 9 is comprised of a cross-reference table that identifies where you can find various pieces of information (like site selection and pre-opening requirements) in the Franchise Disclosure Document (FDD) and the franchisor’s standard franchise agreement. Why You Care If you are not familiar with reviewing FDDs and franchise agreements (and most prospective franchisees aren’t), you can use the Item 9 table to get an overview of the key legal and business terms that will apply if you decide to move forward […]

Sep 27, 2016

Pursuant to federal regulations and franchise laws in various states around the country, before selling a franchise, the franchisor must provide the potential buyer with a Franchise Disclosure Document (or “FDD”). Each franchisor’s FDD must closely follow a format that includes: A Cover Page A table of contents Specific information broken out into 23 “Items” Exhibits (including a copy of the franchisor’s standard franchise agreement) While understanding your franchise agreement needs to be a top priority, it is also important to critically assess the information contained in Items 1 through 23. In a series of three articles, we will summarize what you can (or should) expect to see when you open up your franchisor’s FDD. Item 1: The Franchisor and Any Parents, Predecessors and Affiliates What You’ll Find Along with general business information (like the franchisor’s name and address), Item 1 must contain: a description of the franchise business, the general market for the franchise system’s products or services, disclosures regarding the franchisor’s franchising history and whether it operates any company-owned outlets, and information about competition and industry-specific laws. Why You Care While Item 1 disclosures tend to be pretty general, prospective franchisees can uncover some key information in Item 1. For example, if the franchisor has a prior history in franchising (especially an unsuccessful one) or if the industry has unique legal requirements, this is certainly something you will want to know going into your franchise opportunity. Item 2: Business Experience What You’ll Find A five-year employment and business […]

Jan 28, 2022

When you are a candidate for a franchise opportunity, one of the first things the franchisor will do is provide you with a copy of its Franchise Disclosure Document (FDD). The FDD is an extremely important document, and it provides (or should provide) a wealth of important information about several key aspects of the franchise. But, as franchise attorneys, we know that many prospective franchisees are only interested in the highlights. So, what is the most important information in an FDD?

Nov 30, 2021

Understanding Your Franchise Agreement is our three-part series covering 15 key provisions of the franchise agreement for prospective franchisees. As a franchisee law firm, we have represented clients considering all types of franchises, and we have reviewed franchise agreements from franchisors in every segment of the industry. Parts 1 and 2 of the series covered opening, territory rights, term and renewal, fees, and operating standards. Here in Part 3, we cover transfer, termination, post-termination, dispute resolution and “miscellaneous” terms.

Nov 24, 2021

Understanding Your Franchise Agreement is our three-part series covering 15 key provisions of the franchise agreement for prospective franchisees. As a franchise law firm, we have represented clients considering all types of franchises, and we have reviewed franchise agreements from franchisors in every segment of the industry. Part 1 of the series covered five key provisions at the beginning of the franchise agreement. Here in Part 2, we cover franchise fees, operating standards and renewal.

Nov 19, 2021

Several years ago, we published a popular three-part guide titled, Understanding Your Franchisor’s FDD. As its name suggests, this guide provides an in-depth look at what franchisees need to know about their franchisor’s Franchise Disclosure Document (FDD). Now, we’re taking the same approach to the franchise agreement. In this three-part series, franchise lawyer Jeffrey M. Goldstein breaks down 15 key contract provisions that govern most franchise relationships.

Jun 7, 2019

Before you buy a franchise, the franchisor is legally required to provide you with a copy of its Franchise Disclosure Document (FDD) and franchise agreement. Federal regulations require franchisors to deliver these documents at least 14 calendar days prior to entering into a franchise relationship. This “cooling off” period is designed to give prospective franchisees sufficient time to weight their options without being pressured by the franchisor, as well as to review the FDD and franchise agreement in detail. When reviewing the FDD, most prospective franchisees hit the highlights: the Initial Franchise Fee, the royalty rate, the estimated initial investment and maybe the description of the protected territory. Few digest the FDD in its entirety, and fewer still take the time to wade through the dense legalese of the franchise agreement. 5 Key Issues to Review in the FDD and Franchise Agreement But, when buying a franchise, you need to gather as much information as possible, and you need to make sure you have a clear understanding of your legal rights and responsibilities. You also need to make an informed decision about negotiating certain provisions of the franchise agreement. If you overlook these provisions of the FDD and franchise agreement, among others, you may find yourself facing unexpected (and unhappy) surprises down the line: Franchisor Personnel Experience – Do the franchisor’s key personnel have experience running the type of business you will operate as a franchisee? Do they also have significant experience working for franchisors? Both of these are important, […]

May 18, 2018

When you buy a franchise, the terms of your relationship with the franchisor will primarily be governed by three documents: (i) the Franchise Disclosure Document (FDD), (ii) the Franchise Agreement and (iii) the Operations Manual. These are three very different documents that impact your rights and obligations in different ways, and having a basic understanding of each is one of the first steps toward understanding what you can expect as a franchisee. 1. The Franchise Disclosure Document When you apply to purchase a franchise, the franchisor will provide you with a copy of its Franchise Disclosure Document. The FDD is a federally-mandated form disclosure which consists of 23 “Items” and a series of exhibits or attachments. Although the form of the FDD is established by federal regulation and there are industry standards for the information that franchisors choose to disclose, the FDD should still be heavily-customized to reflect the unique terms of your chosen franchise opportunity. FDDs can be dense and difficult to digest. But, it is important that you take the time to understand the information disclosed (as well as the implications of any missing or “negative” disclosures). For help dissecting the FDD, you can read: Understanding Your Franchisor’s FDD – Part 1(Items 1 through 7) Understanding Your Franchisor’s FDD – Part 2(Items 8 through 14) Understanding Your Franchisor’s FDD – Part 3 (Items 15 through 23) 2. The Franchise Agreement The Franchise Agreement is the contract you sign when you purchase a franchise. This is a legally-binding and […]

Aug 31, 2017

The Franchise Disclosure Document (FDD) is a legal document that franchisors are legally-required to provide to new franchisees at least 14 calendar days (or longer in some states) before they sign a franchise agreement. While scouring the pages of an FDD can seem like a daunting task, state and federal laws require franchisors to provide prospective franchisees with these documents for a reason, and anyone considering a potential franchise opportunity should be sure to carefully review all 23 “Items” of the franchisor’s FDD. Still not sure that you want to try to conquer the FDD? Here are 10 reasons why it will be worth your time: 10 Reasons to Read Your Franchisor’s FDD 1. You Can Learn about the Franchisor’s History and Key Personnel How long has the franchisor been franchising? What experience do its executives and key personnel have both (i) in the business being franchised, and (ii) in the franchise industry? You can find these answers in Items 1 and 2 of the FDD. 2. You Can Find Out if the Franchisor Has Been Sued Is the franchisor in litigation with any of its franchisees? Is it facing a lawsuit that could lead to insolvency? Items 3 and 4 of the FDD include important information about litigation and the franchisor’s bankruptcy history (if any). 3. You Can Find Out How Much You Have to Pay Items 5 and 6 of the FDD disclose the fees you will need to pay to the franchisor (including the initial franchise fee, […]