Franchise Agreement Terms To Pay Attention To: Part 1

Schuyler "Rocky" Reidel

Schuyler "Rocky" Reidel

Schuyler is the founder and managing attorney for Reidel Law Firm.

reidellawfirm.com | Franchise Agreement Terms To Pay Attention To: Part 1
Reidellawfirm.com | Finding a Franchise

Finding a Franchise

When it comes to starting your own business, many people think that the only option is to go it alone. However, this isn’t always the

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Benefits abound when taking on established branding, processes, marketing, and other business activities from a franchise.  

It gives franchisees like yourself a solid foundation and allows you to then use your unique leadership style to grow the business.  

There’s just one thing.  

Before hiring an attorney to help you solidify an agreement, there’s some terms worth knowing.

Why?

Your ultimate success could hinge on what’s written within this document, so let’s get started!

What Information Is Included in a Franchise Agreement?

Enforced at the state level, a franchise agreement is simply a legally binding contract.  Through it, you and the owners of a well known industry name arrive at a mutually beneficial conclusion.

Sounds easy enough right?

Well not if you’re unfamiliar with the U.S. legal system, as is true for foreign nationals.  But even with native born citizens it can be unexplored territory.

As such, allow seasoned vets of franchise law (us) to outline what you can expect.

Contractual Terms of a Franchise Agreement

There are 7 areas we want to highlight which you’ll come across:

  1. Timelines
  2. Fees
  3. Liquidated damages
  4. Confidentiality
  5. Non-competes
  6. Exit strategy
  7. Dispute resolution

Timelines

Once you finally open your doors, the operational side of your franchise will occupy much of your time.  Make it easy on yourself by understanding the outlined deadlines.

Open to negotiation, these time frames may include:

  • Training
  • Opening date
  • Securing a lease or location

Fees

Pretty set in terms of amounts, charges should be clear and relay the value you can expect.  What are some examples of fees you’ll typically see?

Besides the purchase of the franchise, others such as a management fee may be listed.  This translates to a percentage of your receipts while conducting business.

Liquidated Damages

Unless you speak in targeted language, franchisors usually don’t negotiate this term.  Basically an exit fee, expect to pay a fair amount if closure occurs for purely financial reasons.  

Confidentiality

Here lies the critical provision to protect your investment.  Make sure your obligations in securing information are clearly known.  

Also determine who within your organization may need to sign a confidentiality agreement.

Non-Competes

Be aware of any restrictions surrounding joining and leaving the franchise system.  If you leave this system down the road, avoid opening a similar business at least for a few years.  Just to be safe.

Trust us on this one as it’s the most common cause of franchise litigation.    

Exit Strategy

Normally if you decide to sell your franchise, the original franchisor gets a chance to buy it back.  Or they can approve a third party to purchase it.  

Either way, ensure you grasp any requirements around its transfer. 

Dispute Resolution

Mediation and arbitration are common practice if conflict arises.  But does it say where these disputes are worked through?  

If it’s the franchisor’s home state travel may be involved.  This is a detail worth noting.

And there you have it!

Franchise Agreement Advice From Reidel Law Firm

A franchise agreement is usually limited and can lean towards favoring the franchisor, unless legal counsel lends a hand.

With our extensive background in franchise law, Reidel Law Firm can help companies like yours through the process of joining a franchise system. 

Franchise agreements and documents often run several hundreds of pages and can be daunting for even a veteran business owner. 

We can help walk you through the most important terms and conditions and also caution you about anything that may put your business or personal wealth at risk. Call us at (832) 510-3292 or fill out our online form for advice on franchise agreement assistance.