It is an exciting time when you are thinking about a new business venture in a new franchise opportunity. Initially the franchisor will provide you with a Franchise Disclosure Document (FDD) and a franchise agreement. Federal Regulations require that the franchisor provide an FDD at least 14 days before the franchisee signs the franchise agreement. Depending on your state maybe more, time is required for disclosure. This time allows for you to have a trained set of eyes read through the disclosures so that you really comprehend what you are signing up for. Like a commercial lease is very in favor of a Landlord; a Franchise agreement tends to be very in favor of the Franchisor. You want an experienced attorney to explain the what ifs!
Some of the most important issues are things like:
- what happens in the event of a dispute?
- Is the FDD consistent with the agreement?
- When and why can my agreement be terminated?
- What are my exclusivity rights?
Let’s start with your turf! You may be looking for assurances against competition within a geo-space. Having done your due diligence you probably have any idea what kind of turf you need to make the biz work. It your geo-space in the agreement? Can it be negotiated further? Certainly, important stuff that needs to be in there.
Nothing is forever and the same goes with Franchise agreements. They have expiration dates. Upon expiration are you able to renew? Will you have to renew under new terms or do you get to keep your previous terms? Are there conditions that must be met by you in order to renew? Again, important expectations that need to be defined before signing up.
Is the Franchisor being consistent in its presentation and expectations. The FDD must address certain issues as per the Federal regulations. One such issue it that the FDD and the franchise agreement need to match to one another. If the disclosures read one way and the Agreement reads another this is a sign of a poorly managed Franchise. Is that something you want to be part of?
What if there is a dispute between the Franchisor and Franchisee? This should be clearly spelled out in the Agreement. So, when one does arise you know what you need to do in order to address the issue. As stated at the beginning of this article, looking for a Franchise opportunity is exciting, but keep cool and get a lawyer so you know what it is you are signing up for.