Franchise Law

Many people desire to be their own boss, but without feeling the need to reinvent the wheel. By purchasing a franchise, buyers have the potential for selling goods and services that can have instant name recognition and good will and can obtain training and ongoing support from a franchisor to help them succeed.
When buying a franchise, different considerations should be given to the purchase, depending on whether the franchise being purchased is newly licensed from the franchisor or an on-going franchise purchased from another franchisee. While the purchase of a franchise to be started is mostly a matter of doing due diligence to find the right franchise at the right price for the right location, involving primarily the negotiation of the franchise agreement and lease agreement, purchasing an on-going franchise has ail the potential traps and complexities that are a part of buying any business and revenue stream, but with:

• the additional need for approval of the transfer and subjection to certain other rights to the Franchisor with regard to trademarks, quality control, training, and other matters
• payment of a franchise transfer fee (often by the transferring party)
• the need for approval of the assignment of the lease and other contracts with third-parties, and
• and limitations of the time left in the franchise fee agreement or lease agreement in which to recover and profit from your investment of time and money.

1. The newer and less established a franchisor is, the greater the likelihood that a franchisee can negotiate better terms in the Franchise Agreement
2. UFOC contains 23 Items for disclosure as a part of what is a federally required due diligence/disclosure process
3. Potential franchisee is highly encouraged to investigate franchisor by communicating with other franchisees, current or not
4. Franchisee will be concerned to ensure that it negotiates terms it will be able to abide by, such as:
   1. Reasonable minimum sales targets and notice and cure periods
   2. Renewal of the agreement with material terms remaining the same as the initial Franchise Agreement
   3. Proper indemnification and hold-harmless provisions
   4. Express covenants of good faith and fair dealing

In additional to issues applicable to stock or asset purchases generally, when purchasing an ongoing franchise franchisee should also be mindful to:

1. Make sure that the term of any property lease is long enough to ensure franchiser can recover your investment, if much of the goodwill of the franchise is associated with the location and that the terms and conditions of the Lease are acceptable
2. Make sure that Seller is subject to a covenant not to compete with appropriate time and geographic limits.
3. Make sure that the length of the Franchise Term, including renewal periods, is sufficiently long to allow to profit from your investment
4. Carefully read transferability restrictions on reselling the franchise or devising ownership interests in the franchise through wills or trusts Whether purchasing or selling a new or on-going franchise, contact an attorney or lawyer with our firm for guidance in the process.