Many potential business owners who consider purchasing a franchise understand they can be a very effective method of starting a business. National advertising for identified brands often helps to create brand recognition and a built in customer base. The problem for many new business owners is that they are not always aware of what a franchise contract may entail and that contracts are not necessarily a one-size-fits-all issue. The San Jose franchise attorney at the Law Offices of Nicholas D. Heimlich will advise that there are several aspects of a franchise agreement that deserve due diligence before actually signing on the dotted line to any purchase agreement.
1. Franchisee Rights
All contracts are comprised of certain considerations for each of the contracting parties. The problem with franchise agreements is that they are often very one-sided in favor of the franchiser. It is indeed possible for a franchisee to get caught in the middle of an operation that is heavily controlled by franchiser authority. Each clause of the proposed agreement deserves legal evaluation by an experienced franchise attorney, and especially clauses concerning local business decision-making authority by the franchisee.
2. Breach of Contract Determination
The primary legal issue with any contract is a potential breach of the agreement. Most legal disputes are actually categorized as general agreement breaches, and it is always best to have those potential problems established in writing within the contract. Certain common breaches such as late royalty payments or sales of unauthorized products are typical in a standard franchise agreement, but some investors do not opt for the standard agreement.
3. Designated Dispute Resolution
Many franchise contracts also limit the franchisee’s power to sue the primary franchiser when legal disputes arise. This is why it is important to have a franchise agreement lawyer on your side. Franchisees should always ensure that they have full legal rights when problems occur and not just automatically designating arbitration as the only form of dispute resolution. One also has to consider whether the Franchise Agreement requires that any dispute be determined in a far away forum. Mediation is something worth considering as a process because it allows the franchisee an opportunity to reach an amicable agreement based on a totality of circumstances. Arbitrary rulings cannot be appealed like a lawsuit, and mediation is an informal discussion process that can produce a better agreement for the franchisee.
4. Franchise Renewal Authority
Franchise contracts are valid for a specific period of time, and renewal agreements are not always guaranteed. While most agreements do give the franchisee considerable power in renewing the deal, they are not automatic. Renewals are usually contingent on certain factors, and it is always best to know the parameters for any agreement renewal. Franchisees often invest a significant amount of resources into a business, and they need assurance the business can operate for the long term.
5. Territorial Protection Maintenance
Some franchise contracts will state a designated territory for the franchisee, which is stated in writing that no same brand franchise will be allowed within a certain mile radius normally. This can be crucial in a highly-populated area, and franchisees should know the limitations for competing location contracts before entering into the agreement. Standard contracts have standard limitations, but the agreement can be adjusted to benefit the franchisee in certain instances.
Contact the Law Offices of Nicholas D. Heimlich
Is now the best time to buy a franchise? Never enter into a franchise contract without having the agreement evaluated by a franchise law professional. San Jose, CA residents should call the Law Offices of Nicholas D. Heimlich, California franchise attorney, before making a final decision.