You'll find the following information helpful if you are:

• Planning to buy a franchise. If so, you will sign a Franchise Agreement;
• A party to a Franchise Agreement (either as franchisor or franchisee);
• Thinking of franchising your business. If so, you will need a franchise attorney to prepare for you a Uniform Franchise Offering Circular ("UFOC") and a company-standard Franchise Agreement.

• Initial and ongoing franchise fees (including royalty and advertising fees).
• Deadlines for finding an acceptable lease location and opening the franchise for business.
• Franchise territory protections.
• Sales quotas.
• Covenants not to compete.
• Specifications for sources of supplies.
• Termination of the franchise.
• Post-termination obligations.
• Franchisee’s sale of the franchise, including whether or not franchisor reserves a first right of refusal.
• Renewal of the Franchise Agreement upon expiration.
• Dispute resolution mechanisms that are required (mediation, arbitration, litigation) in the event of a dispute between the franchisor and the franchisee.
• The location where disputes must be resolved.

It is in the best interests of the franchisor and the franchisee to have a clear, concise Franchise Agreement that is understood by both parties before signing. The franchisor and the franchise can avoid many relationship problems if they each understand their contractual duties and limitations. The parties' expectations of the relationship will match the contract. It is important for someone thinking of buying a franchise to review the franchise contract and UFOC with an experienced franchise attorney.

Easy-to-read contracts benefit franchisees. Many state franchise administrators encourage franchisors to prepare franchise contracts that use language that the lay person can understand (as opposed to complex and wordy "legalese"). The franchise attorneys at FranchiseSmith, LLC prepare franchise documents that are comprehensive, concise and readable.

It is in the best interest of the franchisor and the franchisee to have a Franchise Agreement that is strong, yet fair. The franchise contract must maintain the integrity of the franchise system. The franchise agreement requires the franchisee to follow the franchisor’s operations specifications so that customers around the world enjoy the same quality of products and services no matter which store location they visit.

For example, if you order a Domino's pizza, McDonald's hamburger or Subway sandwich, you expect the product to taste the same no matter where you are (except for some cultural variations in foreign countries!). This consistency benefits the system as a whole and each individual franchisee.

There are some Franchise Agreement provisions that seem at first glance to be burdensome to the individual franchisee. However, because they benefit the franchise system as a whole, the franchisee also benefits. For example, most franchise contracts do not allow the franchisee to participate in a business that competes with the franchise. Generally speaking, though prevented from competing herself, the franchisee is assured that other franchisees will not unfairly compete against her business. (The post-term covenant should be reasonable as to duration and geographic scope. Call a franchise attorney to discuss the reasonableness of non-compete covenants in a specific franchise contract).

Imagine you are a franchisee in Manhattan, New York. The franchisee in Rochester, New York gets terminated for failure to pay royalty fees to the franchisor. He wants to relocate his business to Manhattan and operate a similar business, under a different name, using the skills he learned as a franchisee to compete with your business. You would feel grateful if the covenant against competition in his Franchise Agreement prevented him from competing against you.

Another contract provision that could seem unfair at first blush, is a provision that requires the franchisor to review and approve of franchisee advertisements prior to use. This benefits the franchisee and the entire franchise system, however, because it prevents franchisees from circulating distasteful or unprofessional ads that could tarnish the reputation of the franchise system.

While being strong where necessary, the Franchise Agreement should not be unnecessarily burdensome. An overly one-sided franchise contract can be more difficult for franchisors to sell to prospective franchisees. Some franchise contracts impose unreasonable fees or other requirements that make it difficult for the franchisee to successfully operate the business. This harms the franchisee because the franchisee cannot make money. This also harms the franchisor. A financially unsuccessful franchisee may disparage the franchisor to the public. As we frequently tell our franchisor clients, "happy and successful franchisees sell franchises". The best way to sell franchises is to ensure the success of existing franchisees.