How to Open a Gas Station Franchise

Buying a gas station franchise provides a business owner with a turn-key operation complete with brand recognition, a proven business model, and ongoing operational support. Branded gas station franchises can offer stable demand, high-volume traffic, and diverse revenue sources. 

However, investors need to be aware that a branded gas station franchise comes with restrictions and numerous state and federal regulatory requirements. Before entering into a franchise agreement, an investor must thoroughly evaluate the business opportunity. This blog discusses the franchise opportunity and walks you through the process of buying a gas station franchise, step by step. 

At Luther Lanard, PC, our practice focuses on advocating for the interests of franchisees. From investment due diligence to franchise document review to resolution of franchise disputes, our franchise attorneys are dedicated to helping your venture succeed. To discuss your venture with our franchise lawyers, contact our law firm today.

Gas Station Franchise vs. Independent Station: What You’re Really Buying

Deciding whether to pursue a franchise opportunity or an independent gas station depends on the operator’s knowledge and experience, available capital, and risk tolerance. The franchise relationship affords instant brand recognition, a proven business model, and operational support. 

Pros and Cons of Gas Station Franchise Ownership

Opening a gas station franchise can make more sense for an operator who prefers working within a proven operational system that handles much of the heavy lifting. The franchisor often supplies the products, provides training, and does much of the marketing.

The downside is that there are typically higher upfront costs to enter a franchise opportunity, along with ongoing costs and fees. The franchisor also typically has the final say on how a franchise is operated, including competition, product offerings, and suppliers.

A product distribution gas station franchise is an option for a franchise owner who wants greater independence in running the business while still benefiting from association with a major brand. A fuel supply agreement restricts a franchisee’s ability to purchase fuel from other sources in exchange for the ability to use the franchisor’s name, logo, and signage, but does not dictate how the business is to be operated day-to-day. 

Pros and Cons of Independent Gas Station Ownership

Experience running a business, and gas station operations more specifically, may make an independent gas station a good opportunity. An independent operator will be free to decide how to run the business and which suppliers to work with. Changes can be made in accordance with business fluctuations. 

The trade-off is that independence means doing it on your own. There is no ready-made business plan to follow or a well-established brand to pull people in. Marketing, regulatory compliance, and supply contracts will be the business owner’s responsibility. Diligent market analysis and a solid business plan are especially important for the true independent operator. 

The Deal Documents That Control a Gas Station Franchise

There are three primary documents a franchisee must contend with to open a gas station franchise. One is informational and provides a franchisee with important information about a franchisor. The other two are agreements between a franchisor and franchisee and govern the business relationship. 

• Franchise Agreement – Establishes the business relationship and rights and responsibilities of the franchisor and franchisee.
• Franchise Lease – The franchisor may own the location of the franchised business and will lease it to the franchisee.

Each document should be reviewed for accuracy and legal compliance, and to ensure the terms are as favorable as possible, before a franchisee signs the franchise agreement or lease. At Luther Lanard, PC, we offer franchise legal review services to help ensure your documents are sound.

A Franchise Disclosure Document?

Gas stations are specifically exempted from the Federal Trade Commission’s Franchise Rule and thus do not require the disclosures that apply to other franchises. 

Step by Step: Legal Due Diligence Before You Sign or Buy

If you decide a gas station franchise is the business you want to operate, the following steps outline how to open a gas station franchise from start to finish. Unless you are especially savvy about franchising a business, you are doing yourself a grave disservice if you fail to consult an experienced franchise lawyer before entering into a franchise agreement.

Do the Research

Decide whether you are interested in an existing gas station or in building a new one. Determine what the traffic is like in the location you are interested in. Assess the growth potential and the restrictions or obstacles to business growth. Decide what additional products or services you want to offer. Scout the competition. A professional advisor can offer guidance for targeting franchise opportunities. 

Create a Business Plan

A business plan demonstrates the viability of your business from startup to daily operations to long-term growth and is usually required to obtain financing. Business plans include data about current market conditions and strategies for building a successful franchise. 

Review the Franchise Agreement

The franchise agreement should be carefully reviewed, and more favorable terms negotiated if possible. Franchise agreements favor franchisors, but there can be room to negotiate depending on the circumstances. 

Initial fees and costs are due upon signing the franchise agreement. Signing the agreement begins the next phase of business development, which may include training, site preparation, and compliance with legal and contractual obligations.

Review the Lease on Franchised Property

A major brand gas station franchisor will often own the franchised location and lease it to the franchisee. Franchisees want to make sure the lease is consistent with the franchise agreement and clear on which party is responsible for maintaining the property, including storage tanks, and for environmental liability. 

Landlords may try to pass on costs and liabilities that should be excluded from the lease. An experienced franchise attorney should review your commercial lease to help you limit your exposure to unnecessary financial and legal liability. 

Obtain Permits, Licenses, and Comply with All Regulatory Requirements

There are numerous gas station franchise legal requirements intended to protect the environment and ensure public safety. Operators must comply with all applicable laws to avoid penalties, fines, or possible shutdowns. 

Get Your Business Set Up and Ready to Go

Determine the kind of business entity you will operate as. Get a tax ID number. Open a business bank account. Obtain business insurance. Invest in software to help you run your business. Hire employees. Decide how you will advertise within the parameters of the franchise agreement.

Texas-Specific Compliance Considerations for Franchise Buyers

Texas has more roadways than any other state, and most Texans rely on their personal vehicles as their primary means of transportation. All that driving requires gasoline. The U.S. Energy Information Administration (EIA) reports that Texas consistently tops the list of US states that consume the most gasoline annually (even though second-place California has almost 10 million more licensed drivers).

The Texas Business Licenses and Permits Guide provides information on all licenses and permits required to operate a gas station in Texas, as well as the applicable regulations. The guide is informational only and is not intended to substitute for the advice of an experienced franchise attorney regarding gas station franchise legal requirements. 

Municipalities may also have specific requirements that franchisees will need to comply with. The Dallas Fire Code requires gas stations to implement stringent fire safety measures, and Dallas city ordinances require convenience stores to install surveillance equipment and exterior lighting to help reduce crime. 

Franchise partner and fuel distributor DFW Oil and Energy offers franchise opportunities with many major oil brands and is the Master Franchisee for Circle K franchising in the Dallas area.

Real Estate and Site Control: Lease Terms, Environmental Risk, and Location Red Flags

Location selection is one of the most important decisions affecting franchise success. When evaluating a retail site location, high traffic is a must. A gas station should be highly visible and easily accessible, and it should offer products and services that customers are looking for. 

Potential environmental contamination at a location caused by underground storage tanks is a risk investors need to be aware of. Station owners and operators are primarily liable for cleanup costs. Operators do not want to assume environmental liability that occurred before they began their franchise.

The lease agreement between a franchisor and a franchisee usually requires the franchisee to indemnify the franchisor for any contamination that occurs during the franchise period. Any pre-existing contamination should remain the responsibility of the franchisor (or owner of the tanks). Obtaining an environmental site assessment before entering into a franchise agreement can provide a baseline for determining liability. 

Franchise Site Location Red Flags

Many important considerations for selecting a gas station franchise location are practical and apparent upon inspecting the property or its records. Discovering any of the following suggests a particular location may not be a profitable investment:

• Location is hard to access
• Location is hidden, or visibility is obstructed
• Traffic volume is light (foot and vehicle)
• Restrictive zoning 
• Property is encumbered 
• Aging or outdated infrastructure
• Too many nearby competitors
• Declining neighborhood

Lease terms may also hint at potential problems with vague terms regarding costs or cost increases, and with trying to pass too many financial and legal obligations to the tenant that should belong to the landlord. 

Negotiation Levers: What Can (and Can’t) Be Negotiated in Gas Station Franchise Deals

Franchisor attorneys draft franchise agreements and tend to favor franchisors. Some of the terms may not be as set in stone as the initial agreement represents. Depending on the opportunity, a franchisor may be willing to modify certain terms to be more favorable to an investor. 

Some issues that might be negotiated more favorably can include:

• Territory size and exclusivity
• Performance targets
• Liability guarantees
• Franchisor buy-back terms

Franchisors are unlikely to negotiate terms on business operations, brand control, or recurring fees. Understanding the franchise market and knowing where a franchisor is more willing to give a little can help an investor negotiate the most favorable franchise agreement. 

Contact a Lawyer Near You for Help with Your Gas Station Franchise

At Luther Lanard, PC, we understand that owning a business is a cornerstone of realizing the American Dream and building a lasting legacy. We believe franchises can offer a legitimate path to business success when investors select the right opportunities. As trusted counsel to franchisees worldwide, Luther Lanard, PC can assist you with every step in the process and offer continued support as you build your business. To discuss your venture with our team, contact our franchise law firm today.

Frequently Asked Questions About Opening a Gas Station Franchise

Below are answers to questions about how to open a gas station franchise.

What’s the difference between a franchise agreement and a fuel supply agreement-and which one matters more day-to-day? 

A fuel supply agreement may be part of a more comprehensive franchise agreement, or it may stand on its own when the franchise relationship is only about supplying fuel to an independent operator. A fuel supply agreement only controls how a franchisee obtains fuel. A franchise agreement also governs many of a franchisee’s day-to-day operating activities.

If I’m buying an existing branded station, what legal issues are unique to an assignment/transfer vs. starting fresh? 

When you buy an existing branded station, you are subject to the business transfer provisions of the agreement between the franchisor and the seller. Franchisors usually retain the right to approve the transfer and may require a buyer to sign a new franchise agreement. A buyer may also end up inheriting the seller’s contractual obligations or other liabilities if not careful.

What are the biggest “red flags” in a franchise for first-time franchise buyers?

The top warning signs that should give investors pause when considering a franchise opportunity are high franchisee turnover rates, frequent or repeated litigation, terms that excessively favor the franchisor, and limited franchisor support.

How do termination/non-renewal protections work for branded fuel relationships?

The Petroleum Marketing Practices Act (PMPA) protects franchisees from unfair termination or non-renewal by a major oil company, refiner, or distributor. Franchisors can only terminate or non-renew a branded franchise relationship for legitimate business or legal reasons.