Ensuring Franchise Companies and Owners Have High-Quality Contracts
Purchasing a franchise can be a lucrative investment, especially if you get the support you need from the franchisor and comply with all requirements under Texas law.
Unfortunately, too many franchisees enter into legal relationships with companies that are less than willing to provide what a franchisee needs for success or, in some situations, even jeopardizes a franchisee’s profitability.
At the heart of every franchise relationship is the franchise agreement. This is the contract each party signs to set out their rights and obligations regarding the operations of the franchise. These agreements can be extremely long and dense, with many complex legal provisions that too many franchisees skim over. In addition, these should never be standard or boilerplate agreements, but they should carefully address all relevant issues relating to this specific franchise.
In order to ensure that your rights as a franchisee are fully protected and that you are setting yourself up for success, you should contact an experienced franchise agreement lawyer in Houston before you ever sign anything. Business attorney Andrew Weisblatt at The Weisblatt Law Firm can help you negotiate and draft a franchise agreement that best protects your interests. Contact us today.
Common Franchise Agreement Provisions
No two franchise agreements will be the same, though there are some common terms that you should always include and understand.
Grant of Franchise
This section states that the franchisor is legally granting the franchisee the non-transferable, limited, and non-exclusive rights to use the trademarks, service marks, logos, and operational systems for a certain period of time. This is a license and not a transfer of ownership to the franchisee, and this provision should detail the franchisor’s rights to terminate the license.
Dates and Territories
This will describe the franchisee’s territory and whether it is exclusive. It will also state the date by which the franchisee must find a suitable location, obtain all equipment for operations, and open the doors.
Fees
The agreement should make clear what the franchisee must pay for the initial franchise fee, costs of materials, and ongoing fees during the franchise relationship.
The Term of the Agreement
What is the length of the franchise agreement? When does it expire? Does a franchisee have the right to renew their rights and, if so, how do they go about doing that? This provision should address all of these details.
Franchisor Services
To ensure success, the franchisor should provide pre-opening and ongoing services to the franchisee. These services should be detailed in the agreement to ensure that the franchisee knows what to expect and has the right to take legal action if they do not receive the expected services and assistance.
Intellectual Property and Proprietary Information Protections
The franchisor is giving license to the franchisee to utilize and benefit from trademarks and other intellectual property and proprietary information. The agreement should contain restrictions on how the franchisee will use this property and information, as well as rights of the franchisor upon the exposure of trade secrets or confidential information.
Training and Quality Control Standards
Franchisors should inform the franchisee of any promises of training, seminars, and other meetings the franchisee can or should attend to understand the ins and outs of operating this type of business. Additionally, the contracts should set standards for quality control expectations and requirements during operations. This way, the franchisee will know exactly what the franchisor expects of them.
Franchise Transfers
Almost every franchise agreement will limit and control how and when a franchisee may transfer their franchise interests to another party. This sections should clearly state all requirements for a legal transfer.
Breaches of the Franchise Agreement
The contract should set out what will be considered a default or breach of the franchise agreement. It should also state which violations should allow the franchisee the opportunity to cure the problem and which violations warrant an immediate termination of the agreement and franchise rights.
Obligations When the Contract Ends
Whether the contract expires or a party terminates the agreement, there should be specific steps listed that a franchisee must take to de-identify with the brand and franchise.
The Legal Relationship of the Parties
Franchisees are not the employees of the franchisor but, instead, they are treated as independent contractors. The agreement should clearly state this relationship and that the franchisee is not an agent of the franchisor but in business for themselves.
Non-Compete Agreement
This provision will limit the franchisee’s ability to open a business that will directly compete with the franchise either during or after the agreement.
Indemnification
With this section, the franchisee agrees to reimburse the franchisor for any losses the company suffers due to negligence or misconduct of the franchisee.
Dispute Resolution
If a legal dispute arises between the parties, the agreement should clearly state how they should resolve the dispute. This can include arbitration, litigation in a specific jurisdiction, and other options.
There will also be a variety of miscellaneous provisions regarding insurance requirements, amendments to the agreement, state-specific requirements, and more. Every provision in a franchise agreement is critical, as violating even one term of the contract can result in legal liability. Often, these agreements highly favor the franchisor, so anyone considering a franchise purchase needs to ensure their rights are also protected and that the agreement is not unfair in any way. The best way to accomplish this is to have an experienced business lawyer help you negotiate, draft, and/or review the franchise agreement before you decide whether to sign it.
Franchises can require hefty upfront fees and investments, and you do not want to risk investing in a one-sided franchise relationship that may be doomed to fail. You should discuss every aspect of the enterprise with an attorney you trust and who has experience with franchise agreements and relationships.
The Weisblatt Law Firm helps clients with a wide variety of businesses, from startups to large corporations to franchises. If you have legal concerns, do not hesitate to call (713) 666-1981 or contact us online today for more information.
Attorney Andrew Weisblatt
Mr. Weisblatt has practiced continuously since becoming licensed in 1992 and has represented businesses ranging in size from one person start-up ventures to multi-national corporations employing hundreds of people in multiple countries. From 2005 through 2009 Mr. Weisblatt was in-house counsel and chief operating officer of a multi-national corporation in the steel products industry. That in-house position provided valuable insight into how businesses work and what they actually need from their lawyers – both in-house and outside counsel. Attorney Bio
