Learn to Evaluate a Franchise Agreement

Hiring An Attorney

Franchise law is a specialty. The local attorney who helped you close escrow on your house or write out your will probably doesn't have the franchise experience necessary to be of any real practical assistance. He or she may not know which issues may be negotiable and which aren't, or when something in an agreement is unusual and possibly unfair. For that, you need someone with experience. Two great sources for qualified franchise attorneys are the International Franchise Association's Council of Franchise Suppliersand Franchise Update Inc.'s Directory of Franchise Attorneys. Another good source is the American Bar Association's Forum on Franchising, which sells a directory of member attorneys for $35. You can reach the ABA's franchise forum at http://www.abanet.org.

Elements you and your attorney should be looking for in the franchise agreement include:

  • Promises the franchisor made to you verbally when you met. If these promises aren't in the franchise agreement, they won't be part of the legal relationship, and the franchisor may not be required to honor those promises.
  • Consistency between the franchise agreement and the disclosure document. Usually that's not a problem, but sometimes you'll find items you thought you understood in the disclosure document aren't quite the same in the legal agreement. Make certain the deal you sign up for is the deal you sign on the dotted line.

If you're working with a franchise broker, don't rely on him or her for legal advice. While most are honorable and knowledgeable, they usually get paid by the franchisor when they succeed in selling you a franchise. Even if they've been friendly and helpful in getting you together with the franchise system of your dreams, they work for the franchisor, not you.

One last piece of advice: Never sign a franchise agreement you don't understand, especially when it comes to the sections dealing with defaults, terminations and what happens when the relationship between you and the franchisor ends-and it will end at some time. Clarify the issues you don't understand, try to negotiate those points that don't fit your needs, and rely on an experienced franchise attorney to assist you in making your franchise decision.

Michael H. Seid is managing director of Michael H. Seid & Associates, a West Hartford, Connecticut- and Troy, Michigan-based management consulting firm specializing in the franchise industry. Seid recently co-wroteFranchising for Dummies(IDG Books) with Wendy's founder Dave Thomas.

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