U.S. FRANCHISE LAW - PRACTICE AREAS

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U.S. Law requires Franchisors to provide Prospective Franchisees with a Franchise Disclosure Document ("FDD"). This document must comply with specific legal requirements and is often a few hundred pages long. 

If you want to franchise your existing business or start a new franchise - providing this document to your Prospective Franchisees will be mandatory.

Several U.S. States require that you register your Franchise Disclosure Document with the State Government, before you are allowed sell franchises in the state. This includes New York. 

New York has specific requirements when registering an FDD with the State. 

U.S. Law requires Franchisors to provide their Prospective Franchisees with a Franchise Disclosure Document (FDD).

An FDD is usually hundreds of pages long and can be intimidating. However, it contains invaluable information when considering a franchise opportunity (such as estimated start-up costs, your rights and limitations as a Franchisee, information on sales projections, on other franchise units, on bankruptcies, and on lawsuits).  

The Franchise Agreement is a legal contract between the Franchisor and the Franchisee. It is different from the FDD and should be reviewed before signing .

While the Franchise Agreement is always provided by the Franchisor - the Franchisee is often able to negotiate some of its terms, especially with emerging brands. This includes negotiating the initial franchisee fees you need to pay, the length of the franchise term, and territory. 

A Single-Unit Franchise agreement allows the Franchisee to open one (1) location of the Franchise Business, while Multi-Unit Agreements allows a Franchise to open more than one (1) location. 

While these definitions are simple, there are often other variables a Franchisee needs to consider. For example, in a Single-Unit Agreement, Franchisees may want to know if the Franchisor or if another Franchisee can open another location of the  brand near their store. 

In a Multi-Unit Agreement, Franchisees may want to know when they are required to open the rest of the stores they have committed to open and what happens if they don't develop them in that time-frame.

An Area Development Agreement allows for franchisees to exclusively open franchise locations in a given area. Areas can be as small as a city or can be as big as an entire state or even the whole country. 

Area Development Agreements need to be properly negotiated as many factors need to be considered, such as the initial franchise fees and royalties, term-limits, renewal rights, as well as development obligations and expectations

A Master Franchise Agreement is an agreement between the Franchisor and a person or entity "Master Franchisee" in which the Master Franchisee is given the power to conduct all franchise activity in a specified area on behalf of the Franchisor. This includes selling franchises to other Franchisees (Sub-Franchises) in the territory on behalf of the Franchisor. 

A Master Franchise Agreement has many components to consider such as territory, the expected development schedule, term of the agreement,  sharing royalties and franchise fees between the Franchisor and Master Franchisee, as well as supply chain obligations, and performance requirements.

Franchise Agreements between a Franchisor and Franchisee or between a Franchisor and a Master Franchisee are not forever, and need to be renewed after several years (usually after 10 or 15 years). Franchisees are provided with an updated FDD and potentially with new terms and conditions that will govern the renewal.

Renewal Agreements can be complicated for several reason. Franchisors may not want to renew with the Franchisee, regardless of there being a renewal term in your original agreement. Franchisees may also see their terms change in their renewal agreements and may need understand what their new rights, obligations, and limitations are.  

Franchisees may be allowed to sell their franchise business or transfer their business to a third party during their term. Similarly, people who want to be a franchisee may be allowed to buy an existing franchise business. 

Selling a franchise or transferring your franchise is not as simple as selling a private business. In the case of franchises, all sales and transfers need to be approved by the Franchisor and the Buyer must meet the Franchisor's requirements as a future Franchisee, in order for any sale or transfer to take place.   

Franchisees are required to maintain brand quality standards throughout the term of their agreement. Franchisors ensure this through periodic inspections and visits. 

Performance can also relate to meeting the Franchisee's development schedule - whether the Franchisee is opening the amount of stores they promised, in the time-frame they promised.

Non-Performance can lead to serious consequences such as revocation of future renewal options, store closures, as well as termination of the franchise agreement.

Non-Performance can get tricky if the Franchisor and Franchisees disagree on whether there is non-performance.

Franchise Dispute Resolutions are usually settled through Alternative Dispute Resolution (ADR) mechanisms such as Arbitration. This is specified in your Franchise Agreement. 

Disputes can arise for a variety of reasons including non-performance, renewal disagreements, termination, development requirements, territory, and omissions in initial disclosure.

However, it's possible that disputes are resolved before they go to arbitration  or to other  formal proceedings -- by interaction between the parties and their attorneys. 

Termination is when one party cancels the Franchise Agreement. Termination can be done both by the Franchisor and the Franchisee. 

However, termination by either side usually requires proper grounds to do so - found in the Franchise Agreement. 

Termination gets complicated when the other side believes that the termination is not justified and when the other side disagrees that there is proper grounds for termination.