If the start of the New Year has you thinking about buying a franchise, there are several important factors you will want to consider as you evaluate different franchise opportunities and make your final decision about moving forward. While many of these factors have to do with the financial aspects of buying a franchise, you need to consider the pertinent legal issues as well, as failing to protect yourself legally could potentially put your franchise in jeopardy. Here, national franchise lawyer Jeffrey M. Goldstein discusses four important legal considerations for individuals who are thinking about buying a franchise in 2021:
1. How Have Other Franchisees Fared During the Pandemic?
Even once the COVID-19 vaccine is available to everyone nationwide, things still won’t fully be back to normal for some time. As a result, while there is reason for optimism in 2021, as a prospective franchisee, it is still important to take cues from 2020.
Within the brands you are considering, how have existing franchisees fared during the pandemic? Are they optimistic about the future? You can find franchisees’ contact information in the Franchise Disclosure Document (FDD), and you can – and should – speak with many franchisees during the due diligence process.
2. What Will Happen if Your Franchise Isn’t Successful?
No one wants to think about the possibility of failure when buying a franchise. But, the reality is that addressing this contingency is one of the most important aspects of ensuring that you have reasonable legal protections before you buy. If your franchise starts to struggle, what options will you have to avoid termination? What will be at risk if you lose your franchise rights? These are questions that you need to address before signing a franchise agreement.
3. Will You Have a Protected or Exclusive Territory?
As a franchisee, territorial protection or exclusivity can be extremely important. Some franchisors offer territorial rights while others do not, and territorial rights can vary widely from one brand to the next. Importantly, territorial rights are not always as they seem, so you will need to be very careful to ensure that you have an accurate understanding of what other franchisees (and the franchisor) can and cannot do in your territory.
4. Will You Be Able to Renew Your Franchise?
Finally, let’s say your franchise is a success. At the end of your initial term, you will want to renew. Will you be able to do so?
Many franchisors reserve broad discretion over franchisee renewals; and, even if your franchise is profitable, this does not necessarily mean that your franchisor will want to (or be forced to) grant a renewal. When negotiating your franchise agreement, making sure you have adequate protection with regard to renewal will be an essential part of the process.
Schedule a Free Initial Consultation with National Franchise Lawyer Jeffrey M. Goldstein
Are you thinking about buying a franchise in 2021? If so, it will be important for you to hire an experienced franchise lawyer to review the FDD and negotiate your franchise agreement. To learn more in a free and confidential consultation, call us at 202-293-3947 or request an appointment online today.
