Learn About the Importance of Hiring an Experienced Lawyer to Conduct a Franchise Contract Review
If you are thinking about buying a franchise, ensuring that you are making informed decisions is one of the most important steps you can take to protect yourself. Among other things, this means ensuring that you have a clear and comprehensive understanding of the terms of the franchise contract. While it is important to read the contract on your own, it is also important to hire an experienced lawyer to conduct a detailed franchise contract review.
Key Provisions in a Franchise Contract
When you hire a lawyer to conduct a detailed franchise contract review, your lawyer will explain the legal, practical and financial implications of the key provisions in the agreement. Your lawyer will answer any specific questions you have about the agreement as well. Some examples of common provisions that require careful consideration include:
Initial Term
It will be important to ensure that the initial term of your franchise contract aligns with your expectations and what you were told during the courtship process. Keep in mind that the initial term will most likely run from the date that you sign the franchise agreement, not the date that you open for business.
Renewal
You will want to work with your lawyer to ensure that you understand your franchise contract’s renewal provisions as well. Do you have a limited number of renewal terms? What are the conditions for renewal? Are they reasonable? Will you be required to sign the franchisor’s “then-current” franchise contract? These are all critical questions to get answered before you sign.
Territory
The territory rights outlined in your franchise contract should also align with your expectations. Territory provisions can be exceptionally complex, and they often aren’t as well-written as they should be. If your territory rights are not abundantly clear, you may want to have your lawyer propose alternate language in addition to conducting your franchise contract review.
Payment Obligations
Your payment obligations should be abundantly clear as well. You should know how much you have to pay, when you have to pay it, and the method of payment that is required. Payment disputes are among the most common causes of franchisor-franchisee arbitration and litigation, and you do not want to unexpectedly find yourself facing accusations of noncompliance.
Deadline to Open
Many franchise contracts specify a deadline to open. If the franchisee does not open for business by this date, then the franchisor can terminate the contract immediately. If your franchise contract has a deadline to open, you need to know this as well, and you need to ensure that you are confident in your ability to meet this deadline before signing. If necessary, you should have your lawyer propose revisions or negotiate on your behalf.
Franchisee’s Duties
Your franchise contract will most likely outline several duties that you need to meet throughout the term of your franchise. Among them will be a duty to comply with the Operations Manual. This is important for two key reasons: (i) if you haven’t seen the Operations Manual, you will be signing up for obligations that you don’t yet know if you can meet, and (ii) franchisors routinely reserve the right to revise their Operations Manuals over time.
Franchisor’s Duties
In comparison to the Franchisee’s Duties section of your franchise contract, the Franchisor’s Duties section will be relatively scant. But it is important nonetheless. As a franchisee, you need to know what rights you can enforce (and what rights you can’t) so that you can make informed decisions about how to deal with issues when they arise.
Default and Termination
The default provisions in your franchise contract will specify when the franchisor has the right to terminate your franchise prematurely. As a result, they are extremely important. During your franchise contract review, your lawyer will clearly explain all of the issues that can lead to early termination.
Post-Termination Covenants
Nearly all (if not all) franchise contracts include post-termination covenants. These are obligations that apply after the franchise relationship ends. Common post-termination covenants include non-competition covenants, non-solicitation covenants, confidentiality obligations and obligations to pay “lost future royalties” in the event of early termination. These are all provisions that you need to make sure you thoroughly understand.
Dispute Resolution
The dispute resolution provisions in your franchise contract are critical. These provisions outline your legal rights and options in the event of a dispute with the franchisor. While you might not be planning to get into a dispute, disputes do happen, and it is critical to ensure that you know what to expect should you receive a demand letter or need to take legal action to protect your investment.
Why It’s Important to Have an Experienced Attorney Review Your Franchise Contact
While you can (and should) read your franchise contract yourself, it is essential that you rely on an attorney’s advice as well. Some of the primary reasons to have an experienced attorney review your franchise contract include:
- Ensuring that Your Interpretation of the Contract is Accurate – In franchise contracts, single words—and even single letters—can have huge implications. Your lawyer can help ensure that your understanding of the contract language is consistent with its actual meaning.
- Explaining Legal Implications that Are Not Readily Transparent – Understanding the legal implications of contract language requires knowledge of legal principles that are not espoused in the contract itself. Your lawyer will be able to provide the additional insights you need.
- Identifying Errors and Omissions in the Contract Language – In many cases, what a contract says and what it doesn’t say are equally important. In addition to accurately interpreting your franchise contract, your lawyer can also identify any errors or omissions that need to be addressed to protect you during the franchise term.
Inquire About Our Fixed-Fee Franchise Contract Review Services
If you are considering a franchise opportunity and would like to know more about our fixed-fee franchise contract review services, we invite you to get in touch. Call 202-293-3947 or contact us online to get started with a free consultation.
