Be Sure to Use a Franchise Attorney When You’re Buying a Franchise

by Ed Teixeira

For a number of people, purchasing a franchise is the most important decision they will ever make. In some cases they will use their retirement savings, secure a home equity loan or rely on loans from family members to fund the investment. Despite the success that franchising has brought to people, it’s an investment that has risk. The key component of the franchise relationship is the franchise agreement, which includes a number of ancillary documents. These documents can include a personal guaranty, non-compete and an acknowledgement disclosure pertaining to information presented to the franchise prospect by franchisor staff during the sales process.

Franchisors utilize franchise agreements with contract language that has been refined over a number of years. Many of the provisions in today’s franchise agreements have been crafted based upon prior franchise litigation and various judicial decisions. Since franchisors conduct their franchise business over a broad geographic area they require a strong agreement that favors the franchisor and is able to withstand various legal challenges and franchisee claims. However, if a franchisor doesn’t fulfill their contractual obligations these provisions can be for naught.

Given these factors, it’s important that prospective franchisees use the services of a qualified franchise attorney before completing the transaction. The worst reason for not using a franchise attorney is to save money.

An unintended consequence of the Internet is that the amount of information available, on a variety of subjects, can create a false sense of confidence. There is a great deal of franchise information on the Internet, including various websites such as the FTC site. It fine to use this information to gain a basic understanding of franchising but don’t think your new found knowledge can take the place of a franchise attorney. Every day individuals will purchase a franchise without the benefit of franchise counsel. This happens despite the admonition in the Franchise Disclosure Document to seek the advice of an attorney.

The reasons and benefits for using a franchise attorney:

• Franchise law has become more complex and as result requires a certain expertise that a non-franchise attorney may not have.
• A franchise attorney has experience dealing with various franchisors and could detect warning signs.
• There are particular provisions in franchise agreements that are unique.
• A franchise attorney will know what sections in the franchise agreement to focus on.
• It may be easier for a franchise attorney to negotiate changes to your franchise agreement.
• You can protect yourself from future problems.
• Since franchisors are represented by franchise attorneys you want your attorney to speak the same language.
• The cost of a franchise attorney will represent a small portion of your total investment in the franchise.

Before you sign the franchise agreement, pay the franchise fee and make the commitment to your new franchise business be sure that a franchise attorney is guiding you. It’s an investment you need to make.

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com