Anyone considering buying their first – or next – franchise business will inevitably receive a franchise disclosure document (FDD) from the franchisor. The next step is to meet with a franchise lawyer to review the FDD, the franchise agreement, and other critical documents.
Below are some tips to help multi-unit operators and new franchisees find the right lawyer to protect their interests.
Why Buyers Need Franchise Lawyers
Franchise lawyers are similar to general business lawyers, but have special qualities that benefit franchisees and multi-unit operators.
Like business lawyers, franchise lawyers typically know what it takes to buy, sell and launch a company. Some may also have deep experience with commercial leasing, which impacts brick-and-mortar franchise units.
But franchise lawyers are unique since they also have a particular insight into the franchise relationship. They can not only provide guidance as to the franchisee’s rights and obligations under the franchise agreement, but they can also provide context for the franchisor’s information disclosed in the FDD and the possible impact on the franchisee.
Moreover, if they have extensive experience reviewing (and possibly writing FDDs), knowledgeable franchise counsel can identify which contract provisions are commonly found in franchise agreements, e.g., the requirement that the franchisee sign a new form of franchise agreement on renewal. Conversely, franchise counsel can identify unusual provisions such as one time when this author reviewed a franchise agreement which provided the franchisor with a right to require the franchisee to sell its franchise back to the franchisor.
In addition to their legal knowledge, franchise lawyers often have invaluable networks and many longstanding professional relationships with other franchise counsel, as well as franchisors and franchisees. The franchising community is small, and the lawyer may have previously collaborated with the franchisor, its counsel or other franchisees in the franchise system. This can be extremely beneficial for clients and can help them manage the acquisition process.
Franchise lawyers ultimately know how to combine these qualities with their negotiating skills to provide the best possible representation.
Who Is Your Lawyer?
When interviewing an attorney who is a member of a firm, as opposed to a solo practitioner, be sure to inquire whether that lawyer will lead the review and negotiation process or whether a different attorney in the firm will be assigned to the matter.
If a prospective client meets with a senior member of a firm and is subsequently handed off to an associate, it might not be the right fit. Of course, these issues do not arise when the client aligns with a solo practitioner.
Experience and Reputation Matters
Information about the lawyer should be publicly accessible including through the lawyer’s website or social media pages. But prospective clients should dig a little deeper and ask the lawyer about his or her track record. They should be able to speak to their experience with representing franchise clients in various industries and at various stages of growth.
Franchising may be big business, but as mentioned above, the franchise bar is not as large as one would expect. That is why a good franchise lawyer will be known among the local legal community. Profiles on sites like BestLawyers.com are helpful because they are peer-reviewed.
Sometimes clients feel the need to move very quickly on a franchise acquisition and only approach the lawyer for general advice.
But if a franchisee wants to truly understand what they are getting into when buying the particular franchise and gain a broader perspective on their rights and obligations as a franchise owner, then the lawyer will need to take the time to read the FDD which is often 200-to-400 pages (including the franchise agreement which is an exhibit to the FDD).
Once the lawyer has become knowledgeable about the specific franchise offering, he or she will meet with the client for an extensive review of the documents. That is also the time where a franchise attorney can answer any questions that the client has about franchising, the particular concept and/or the relationship between the franchisee and franchisor. The review will allow the lawyer to highlight the critical points of the agreement, and identify potential risks or atypical obligations, like the “reservation of rights” detail mentioned above. To fully address these issues, the client should expect this meeting to take at 1.5 – 2 hours.
Thereafter, the client should understand what he or she is getting into by agreeing to develop a franchise and can then make an informed decision on whether to purchase the franchise.
Still Have More Questions? Contact Lusthaus Law
At Lusthaus Law, we know that buying a franchise can be an effective way to fast-track your business ownership dream. The key is understanding your potential risks, rights, and obligations. For more than 22 years, we have guided franchisees and provided them a full repertoire of franchise-related and general business services.