Societal and consumer needs regularly change, and franchise lawyers should update their franchise agreement to reflect major developments and innovations.
Franchisors and franchisees must continually adapt to new technologies, online behaviors and service and delivery methods, and a forward-thinking franchise lawyer will incorporate these emerging trends and risks into agreements. Otherwise, clients will be subject to outdated contracts and ideas that could leave them exposed and vulnerable.
Let’s discuss a few key areas where franchise lawyers should consider updating franchise agreements.
A New Landscape for Territory Rights
Territory protections for franchisees are addressed on a baseline level in Item 12 of a Franchise Disclosure Document (FDD). Even if another unit similar to the franchise will not be established in the territory, expanded delivery services or non-traditional locations could inadvertently violate the franchisee’s territory protections.
For example, ghost kitchens are an emerging type of non-traditional location. A ghost kitchen is an off-site location that a franchisor can utilize to keep up with takeout demands and provide delivery of branded products. Reviewing (and potentially revising) Item 12 of the FDD and addressing this sort of non-traditional unit in a franchise agreement is a wise strategy.
Alternative Distribution Channels and Online/Social Media Presence
The popularity of “on-demand service” is at an all-time high – whether out of necessity or convenience. Companies will have to determine whether they can provide delivery services, and if so, whether if they will engage a third-party company to supply those services.
Franchise lawyers will need to refine franchise agreement provisions addressing alternate distribution channels for franchisors and franchisees. This will extend into delineating franchisees’ online presence in social media and online apps.
Restaurant consumers have made it known they expect a new level of tech-based service, characterized by speed and reliability. Franchisees should address delivery services in their agreements, as it will clearly continue to be a key business driver.
We recently discussed how in-person service in franchising could be approaching a new era of technological evolution, and future agreements should build in for innovations and emerging risks.
To move forward with this sort of change in product delivery, franchisors must ensure that their franchise agreements allow for innovation. Following a proof-of-concept that could vastly improve your franchise model or system, consider whether your franchise agreements allow for “not yet known” technological advancements and modern-day developments – from autonomous vehicles to cloud security and blockchain technology.
Franchisors will need to update their FDD as they adapt to these changes. For example, Item 7 should reflect costs associated with new technology, and Item 8 should be revised to account for required suppliers for new equipment as well as possible changes to insurance requirements.
These are just a few areas that franchise lawyers should consider when revising existing agreements or drafting agreements for a new franchise program, and for franchisee counsel to consider in interpreting or negotiating the rights of their clients.
Julie Lusthaus will lead an educational webinar about these and other pressing items on Feb. 21, 2023, hosted by the American Bar Association: “Hitting Refresh: Updating Your Franchise Agreement to Reflect the Times.”