Two of the most critical documents applicable to your purchase of a franchise is the Franchise Disclosure Document (FDD) and the Franchise Agreement. Franchisors are required by law to provide a prospective franchisee with its current FDD at least fourteen days before selling a franchise in order to allow the prospective franchisee an opportunity to review the documents and consider them as part of their due diligence process. This is the document that will contain essential background information regarding the franchisor and the franchised business that a potential franchisee should know before deciding whether to invest in the business. The FDD includes items detailing the relationship between the franchisor and franchisee, the roles and obligations of each party, the franchisor’s trademarks, and the financial information relating to the franchise, among other items. On the other hand, the Franchise Agreement is the binding agreement that outlines the rules on the relationship between the two parties and is ultimately what the parties will sign to establish the franchise relationship.
Because these documents can often be quite lengthy or difficult to understand, franchisees are advised to hire a knowledgeable franchise attorney to perform a review of the FDD and the Franchise Agreement. The role of franchise attorneys is to help you understand the scope of your legal obligations before entering into a deal and to discuss any potential issues you may have with the franchisor. Franchise Agreements have “terms of art” that have specific legal consequences that might not be readily apparent without the assistance of an attorney to better explain how these terms apply in real life situations. Typically, the review process with your franchise attorney will initially involve your franchise attorney providing written comments explaining certain provisions of the FDD or the Franchise Agreement and describing any potential points of concern or negotiation opportunities. Next, you and your franchise attorney should discuss these comments and determine how to proceed on resolving any of the issues that were identified. Finally, you and your franchise attorney will negotiate with the franchisor on any final matters. Ultimately, your franchise attorney will be able to guide you through this process while tailoring their counsel to your specific concerns.
The contents of this article do not constitute legal advice nor does it create an attorney-client relationship with Canada Lewis & Associates PLLC. You should discuss your situation with an attorney whom you have engaged to perform legal services for you. If you wish to retain the services of Canada Lewis & Associates, please contact our office for more information.