A Franchise Attorney Can Provide a Legal Review of Your Franchise Investment Opportunity
The Federal Trade Commission (“FTC”) recommends that franchise buyers first consult a lawyer before buying a franchise. Before investing your time, money, and sweat into a franchise, you must pick the right one and know the risks ahead of time. Unfortunately, many prospective franchise owners do not review the franchise disclosure document (the “FDD”). We don’t blame them. It’s a long, cumbersome document filled with “legalese” that is hard to digest and understand. That’s where we come in. We have both drafted and litigated FDD’s and know the in-and-out’s of those documents including what the FTC requires to be in there. Most importantly, we can read between the lines to know what the potential red flags are.
What is Part of the Franchise Legal Review?
As part of the franchise legal review, we will review the FDD (23 sections), your franchise agreement, and any related addendums or agreements you are required or would like to sign. Following our review, we will discuss with you the following subjects where applicable:
- What are the biggest red flags for the franchise;
- Whether the franchisor has properly registered to sell franchises in your state or else whether you properly qualify for an exempt sale;
- Whether the form of the FDD is FTC compliant;
- Your state franchise laws;
- What laws and regulations the franchisor requires you to comply with to operate the franchise;
- The experience of the executives and whether they have been associated with problematic franchisors in the past;
- Any problematic litigation or state enforcement actions by regulators against the franchisor;
- Whether the franchisor has shown success in opening franchises sold;
- What the royalty structure looks like;
- Real estate requirements;
- Territory and whether it’s exclusive or has other protections;
- Any onerous requirements placed on your operations;
- Whether the franchisor has registered trademarks and whether there are any disputes over validity;
- Your ability to exit (termination, renewal, transfer, and non-compete provisions); and
- Dispute resolution procedures.
Negotiate Your Franchise Agreement and Know the Risks Before You Sign
After reviewing your FDD and franchise agreement, we will provide you a written summary of our key findings, including pointing out any red flags. We will then provide consultation in person or over videoconference to review the findings and answer any questions you have. We will walk you through the risks of your selected franchise system and franchising in general during that consultation.
We will also provide you a list of recommended terms to negotiate. Whether your selected franchisor will negotiate the terms of the franchise agreement often depends on its size and how in-demand its franchises are. This is where it pays to have a franchise attorney rather than a general practitioner. Franchisors will not negotiate with attorneys who don’t understand the franchising relationship and attempt to negotiate everything in the franchise agreement. Unfortunately, an attorney like that can charge you a fortune. Often you will not receive any concessions from the franchisor.
Our approach is to hone in on key provisions that have big impacts that franchisors are known to negotiate. We understand where there might be leeway to negotiate part of the franchise agreement, and we understand which provisions result in the greatest risk to a franchisee. We will use our expertise to help you negotiate those points and increase your likelihood of getting more favorable terms.
We currently charge a competitive flat fee for the franchise legal review, which includes everything discussed, including the consultation, a written summary of findings and a list or addendum of revised terms.
Schedule Your Franchise Legal Review Today
You don’t buy a house without getting an inspection. The same is true in franchising. Make sure you know what you’re getting into before purchasing a franchise. Whether you are in Orange County, Southern California, or beyond, contact a franchise attorney to schedule a consultation to discuss how we can help.