Before you Sign that Contract

Before you Sign that Contract

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Establishing and maintaining a healthy relationship between franchisee and franchisor is essential. A franchise agreement should provide a balance of obligations for both parties and should be properly understood by the franchisee. While it may be an extra expense for a new franchisee, hiring an experienced professional is important. Franchisees might not be familiar with the legalities of owning a franchise as well as their rights in terms of negotiating some of the terms in the agreement.

Which contractual oversights most often lead to serious problems down the line for franchisees?

Many franchisees, confronted with a comprehensive agreement, do not take the time to understand it properly before signing it. Franchisees who fall into this trap often find that what they expected to receive from the franchisor is not forthcoming and they have no way to compel the franchisor to deliver. The franchisee must ensure that whatever he expects to receive is clearly provided for in the agreement.

At what point of the franchise purchase should a franchisee consult with a lawyer?

When setting up a new business, there are other contracts that a franchisee will have to conclude, such as the lease of the business premises and finance agreements. Few start-up SME owners have
sufficient knowledge or experience to negotiate these agreements without some professional guidance and the franchisee should seek advice before signing any agreement.

How much should a franchisee expect to pay for a lawyer’s services?

It is impossible to say with accuracy. Most attorneys charge for their services on an hourly basis and the hourly rates vary according to the experience of the practitioner, whether he is a specialist in the field, and so on. How much of the attorneys’ time is required will depend on the length and complexity of the documentation on which he is required to advise and how much time he is required to spend in meetings with the franchisee and
other parties.

Are there any ways to reduce the legal fees?

The basic agreements – the franchise agreement, lease and finance documentation – are part of the foundation on which the business is built. Franchisees should beware of trying to reduce legal fees at the expense of getting the advice they need. That being said, one way of avoiding unnecessary costs is to give the attorney as much information and background documentation as possible, rather than letting him find things out at a later stage that necessitate amendments to agreements, at further cost to the franchisee. Consulting a specialist, who understands the business of franchising and knows what questions to ask, may cut down the time spent
in meetings.

Where can a franchisee go to find good legal advice?

In any discipline it is always advisable to consult a professional with specialised knowledge in the field. The attorneys on FASA’s list of service providers are all specialist franchise practitioners.

How can franchisees evaluate whether or not a lawyer is well qualified and experienced?

As already mentioned, the attorneys on FASA’s list of service providers are all specialist franchise practitioners. The attorney can be asked to give information of his experience and details of clients for whom he has acted. Although, for reasons of confidentiality, most lawyers will be reluctant to give out details of a client without the client’s consent.

What are some of the most important clauses to look out for in a franchise agreement?

Every clause in a legal document is significant and the franchisee must be sure that he understands the whole agreement. In general, the franchisee must be aware of his financial obligations and ensure that the franchisor is binding itself to deliver what the franchisee expects.

How binding are the franchising agreements? Can a franchisee terminate the contract before the renewal date?

Every contract, signed by ‘consenting adults’, is binding on the parties. In general, if an agreement is for a fixed period, neither party can terminate it without the consent of the other, unless the other has committed a material breach.

What can a franchisee do if a franchisor deviates from the original contract?

The signed agreement is binding on both parties, franchisee and franchisor alike. If the franchisor does not comply with the agreement, the franchisee can either cancel it and claim damages or compel the franchisor to comply. However, many franchisees encounter problems because they did not read the agreement properly and promises that might have been made verbally were not included in the document. The franchisee will have difficulty in forcing the franchisor to honour those undertakings.

Any further advice for franchisees?

The most important advice is to read each document carefully and understand it, and ensure that everything you expect of the franchisor is included before signing.