Jun 22, 2016 - Blog by |

When you are considering a new franchise opportunity, the franchisor will provide you with two main legal documents: a Franchise Disclosure Document (FDD) and a franchise agreement (at least initially, the franchise agreement will be included as an exhibit or attachment to the FDD).

By federal regulation, the franchisor must provide you with the FDD at least 14 days before you sign the franchise agreement, and some states’ franchise laws require even earlier disclosure. Part of the reason for this is that these documents are exceedingly complex (and long), and it is critical to make sure that you have a thorough understanding of the franchise opportunity before you sign on the dotted line.

The Importance of Understanding Your Franchise Agreement and FDD

So, should you hire an attorney to review your franchise agreement and FDD? Absolutely. Despite the franchise relationship and disclosure laws that exist in some states, most franchise relationships are still extremely one-sided.

If you are not familiar with the way FDDs and franchise agreements are written, you will almost certainly overlook important issues that could have drastic financial and legal implications over the life of your franchise. An experienced franchise lawyer will be able to assess your franchise opportunity in light of industry standards and with an eye toward ensuring that you have reasonable protections in the event that something goes wrong.

Top Reasons to Hire a Franchise Agreement Lawyer Before You Sign a Franchise Agreement

With these considerations in mind, here are five of the top reasons to hire a franchise lawyer before you sign your franchise agreement:

1. The franchise agreement should be consistent with the FDD.

There are numerous issues to watch out for in the 23 Items of the FDD, but one overarching issue is that the terms of the FDD and the franchise agreement should be consistent. If the FDD says one thing by the franchise agreement says something else, this can often be a sign of trouble ahead.

2. You will want to understand when the franchisor has the right to terminate your franchise.

Getting more into detail, you want to make sure you have a clear understanding of any rights the franchisor may have that could result in the termination of your franchise. Most franchise agreements provide numerous termination rights for the franchisor, and few (or none) for the franchisee.

3. What happens when your franchise agreement expires?

Franchise agreements expire after a specified period of time. When your agreement expires, do you have the right to renew? On the existing terms or on the franchisor’s then-current terms? Do you have to satisfy any conditions in order to be eligible for a renewal?

4. Your territorial rights should align with your expectations.

As we have previously discussed, not all franchisors offer protected territories, and not all protected territories as exclusive. You will want to make sure you are comfortable with the territorial protections (if any) being offered.

5. That boilerplate at the end is actually pretty important.

Finally, what most people dismiss as “boilerplate” actually contains some of the most important provisions in the entire franchise agreement. Understanding things like what steps you have to take (and where you have to take them) in order to initiate a dispute can be crucial to making an informed decision about the franchise opportunity as a whole.

Goldstein Law Firm Offers Fixed-Fee Franchise Agreement Reviews

At Goldstein Law Firm, we offer fixed-fee franchise agreement and FDD reviews for franchise systems nationwide. Attorney Jeff Goldstein has over 30 years of franchise law experience, and has reviewed countless franchise agreements and FDDs. For more information, call (202) 293-3947 or request a review online today.

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