What Legal Advice Do I Need Before Buying a Franchise? A Guide For Franchisees

Thinking about buying a franchise? There’s a crucial question potential franchisees should be asking early on: What legal advice do I need before buying a franchise? Working with a franchise attorney can help franchisees navigate complex agreements, avoid common mistakes and ensure a franchising investment is properly aligned with goals for ownership.

Why Legal Advice Is Important

Legal guidance isn’t just about contracts. It’s about protecting your investment, clarifying your expectations and understanding your rights before committing. Longtime franchise attorney Jill Klein says early advice can impact franchisees from the day they sign to the day they exit.

“I’m often asked how they can end the franchise relationship,” Klein said. “Say, for instance, a franchisee has entered into a franchise agreement without considering what their rights are if they later decide to exit. Contractually, the franchisee is facing a choice between the least unsuitable of their options. But early counsel can identify risks, suggest modifications to agreements and even advise against a purchase if red flags are significant.”

FDD Review

An attorney will review the Franchise Disclosure Document (FDD) and franchise agreement. Five areas to consider:

• Regulatory Compliance: Item 1 of the FDD provides franchisor background and could reveal industry-specific restrictions or licensing requirements that may affect your ability to operate.
• Financials and Fees: Items 5 through 8 and 11 help determine if franchise fees, technology costs or training expenses are fair.
• Territorial and Competitive Protections: Item 12 shows whether your franchise territory is protected and if the franchisor or affiliates are in competition with you.
• Franchisor Performance: Items 3, 4, 19 and 20 provide insights on litigation history, return on investment and general franchise system activity.
• Contracts: Attorneys will carefully review the franchise agreement for clarity on obligations, exit rights and negotiation opportunities.

Negotiating Terms

How much a potential franchisee can actually negotiate depends on the size and reputation of the franchisor. 

“There is little room to negotiate with a large, well-established franchisor,” Klein said. “But emerging brands may be open to fair requests that clarify obligations or address ambiguities.” 

Legal Takeaways

1. Engage Early: Early legal review (before signing) can prevent costly surprises later.
2. Properly Assess The FDD: It’s important to know where potential risks or hidden costs may lie.
3. Assess Negotiation Leverage: Consider the brand’s size, history and openness to changes.
4. Clarify Exit Options: Ensure the agreement provides reasonable paths if ownership goals change.
5. Compare Financial Representations: Analyze trends in Item 19 to better understand franchise financial performance.

So, what legal advice do I need before buying a franchise? Strong legal advice is a critical early part of the franchise buying process and can have a significant impact on success. But by engaging experienced counsel, reviewing critical FDD items and understanding ownership rights and obligations, potential franchisees can confidently make an informed investment.

Want to learn more about franchise opportunities on 1851 Franchise? Be sure to visit our Power Rankings to read more on brands making moves.