When buying a franchise, it is important to hire a franchisee attorney to review the Franchise Disclosure Document (FDD) and negotiate the franchise agreement. You have heard this advice plenty of times before. But, is it really necessary? What are the chances of a legal issue actually putting your franchise at risk? Given how much you are investing already, couldn’t you save some money and just accept the terms of the franchise agreement as they are written?
When buying a franchise, conducting thorough due diligence, and negotiating your franchise agreement are two of the most important aspects of the process. To illustrate, let’s consider an example of what might happen if you sign the franchisor’s form agreement:
You Need (or Want) to Cut Costs
You’ve been operating your franchise for a while, and you have identified some areas where you could cut costs and increase your profit while also providing a better product or service to your customers. You decide to make some changes; and, just as your business starts to improve, you get a notice from your franchisor. You are in default of your franchise agreement because:
- You have purchased products from a company other than your franchisor’s designated supplier;
- You have deviated from the franchise system standards in violation of the Operations Manual; and,
- You started selling a new product or service without the franchisor’s approval.
Not only must you revert to your franchisor’s “approved” less-profitable business model in order to save your franchise, but you must also eat the investment that you put into improving your franchise.
Your Franchise is Up for Renewal
The next year, your franchise agreement comes up for renewal. You submit notice of your intent to renew, you renew your lease, and you start talking about the future with your employees. Then, a month before your franchise agreement expires, you get a notice stating that your franchisor will not be granting you a renewal term. The grounds cited include:
- You did not provide notice within the prescribed time window; and,
- You never fully addressed the “deficiencies” created by your prior attempt to increase your profits and customer satisfaction.
Now, you are scrambling. Not only are you on the hook for your lease, and not only have you told your employees that their jobs are safe, but you also just remembered that your franchise agreement contains a three-year non-competition covenant. What are you going to do?
These are all very real issues that could come up if you do not negotiate your franchise agreement. When franchisors prepare their form agreements, they reserve extraordinary protections for themselves while providing next to nothing in the way of protection for their franchisees. Negotiating can potentially avoid all of the issues discussed above (among many others), and hiring an attorney to negotiate reasonable protections is more than worth the modest cost involved.
Discuss Your Franchise Opportunity with National Franchisee Attorney Jeffrey M. Goldstein
If you are thinking about buying a franchise, it is extremely important that you speak with an attorney before you sign your franchise agreement. To learn more about the risks involved from national franchisee attorney Jeffrey M. Goldstein, give us a call at 202-293-3947 or inquire online today.