Richard L. Rosen, a New York-based franchise attorney, with over 35 years of experience, shared how he helps his clients negotiate their franchise terms:
You need your franchise attorney to review your franchise agreement before you sign it. You’ll also need him or her to conduct a complete review of the FDD. Some franchisors will gladly share their FDD with you right away, while others withhold it until they’ve qualified you as a serious candidate for franchise ownership. Note that they must, legally, provide the FDD no later than your first in-person meeting.
Right of first refusal: If a franchisee decides to sell a franchise unit, the franchisor has the option of buying it back themselves or allowing a new owner to buy it and take over operations. In some cases, the franchisee is tasked with finding a new buyer, which the franchisor then needs to approve before final sale.
This is because franchisors don’t want to give one franchise owner more preferable terms than another, which could create dissent and resentment within the system.
Franchise territory: Most franchise systems offer franchisees an exclusive territory. This may be outlined as a certain distance from your business address, for example, a specific city or county or some other delineation.
Prior to meeting with him or her you should review the documents on your own and prepare questions and concerns for your meeting. Don’t worry if some parts of the FDD don’t make sense to you. FDDs usually contain an extensive amount of “legalese” that your franchise lawyer will help to put into layman’s terms.
Franchise lawyers may also be able to help you negotiate the terms of your agreement and offer guidance on which aspects of the agreement are vague, requiring additional clarification from the franchisor.
An experienced franchise lawyer can explain important provisions of the franchise agreement. A franchise lawyer may also be able to point out unusually harsh or one-sided provisions that are not common in the industry. An experienced attorney will understand what to look for in the Franchise Disclosure Document, and can identify red flags. Also, the attorney may know of common law and state laws that protect franchisees. Knowing key points before signing could save you from making a big mistake.
The franchisee acquires the rights to open a business using the franchisor’s intellectual property, systems and brand, provided it meets certain conditions.
The FTC Rule imposes strict disclosure requirements on franchisors in the form of a Franchise Disclosure Document (FDD) that must be delivered to a prospective franchisee.
A license simply means one party gives permission to another party to do something or use something of value. In the case of franchising agreements, this means: The franchisor licenses to the franchisee the right to use the franchisor’s intellectual property, systems and brand.
Franchise Agreement: 20 Important Things to Know. A franchise agreement is a legally-binding contract between the parties to a franchise relationship. In order to take ownership of a franchise as the franchisee, you sign a franchise agreement. A franchise agreement protects both sides. It protects you as the franchisee and also protects ...
In order to take ownership of a franchise as the franchisee, you sign a franchise agreement. A franchise agreement protects both sides. It protects you as the franchisee and also protects the franchisor brand. When buying a franchise you will be making a large financial investment. A signed agreement gives you rights to help safeguard your ...
The copy must be attached to the FDD and delivered a minimum of 14 days before entering into a binding contract. This gives you time to review and discuss the agreement with an attorney.