Contact us: +1 (732)-500-2404 | APendse@PendseLaw.com
- Franchise Disclosure Document (FDD)
- Franchise Agreement Finalization
- Single-Unit, Multi-Unit, Area-Development, and Master-Franchise Agreement Representation
- Franchise Lease Negotiations
- Business Formation
- Franchisee-Franchisor Dispute Resolution
- Franchise Renewal Agreements
- Franchise Transfer Agreements
- Non-Performance Issues
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.
If you are a Prospective Franchisee, Existing Franchisee or if you want to start your own Franchise, schedule a consultation today.
U.S. Franchise Law is complex and requires variety of disclosures and in some cases state registrations. While the paperwork is daunting, it contains invaluable information when it comes to the brand you are considering. A qualified franchise attorney knows how to navigate the process, and how to read the FDD, and how to highlight important information such as initial startup costs, your rights, obligations, and limitations, as well as any potential red flags.
If you are an entrepreneur wanting to start your own franchise brand, U.S. Law requires that you have an FDD (that is regularly updated) available for your future prospective franchisees. It is the first step when starting a franchise and needs to be done correctly. A qualified franchise attorney knows exactly what these disclosures require and the extent of those disclosures. Franchisors also need to have Franchise Agreements, and strategies to deal with Franchisees who have an issue with non-performance.
We offer consultations both via Zoom as well as In-Person (our office is located in Woodbridge, New Jersey -- and is located right across from Metropark Station on the NJ Transit and Amtrak, and is located right off of the Garden State Parkway)
Schedule a consultation and discuss your options today!
Contact Us Today:
+1 (732) 500-2404 | APendse@PendseLaw.com
The Law Office of Ameya S. Pendse, LLC.
33 Wood Avenue South, Suite 600
Iselin, New Jersey 08830
(Located Right Across from Metropark Station on NJ Transit & Amtrak)
Copyright © 2020 The Law Office of Ameya S. Pendse, LLC. All Rights Reserved
Logo by Erik Topp