What Should Be in a Franchise Purchase Agreement? Read These Clauses Before You Sign

What should be in a franchise purchase agreement, and which provisions deserve the most attention before signing? The Franchise Disclosure Document gives prospective buyers information about the business, but the agreement sets the terms they must follow after opening. Renewal, termination, transfer restrictions and personal guarantees can become especially important when an owner wants to leave, sell or continue operating beyond the initial term.

Renewal, Termination and Personal Guarantees

Megan Center, counsel in the franchise and distribution group at Faegre Drinker, drafts franchise agreements for franchisors. On a May 2026 episode of Franchise Business Review's “From A to Franchisee” podcast, she said agreements commonly run 60 to 80 pages, with provisions written largely to protect the franchisor. The FDD summarizes only a fraction of those terms.

Renewal can change the deal's economics. Center said most agreements require franchisees to sign the franchisor's then-current agreement at renewal, potentially bringing new fees or a smaller territory. Buyers should ask how the agreement they're considering compares with the version they may be required to sign at renewal.

Termination provisions can be just as consequential. Center said she has “seen agreements that have 40 terminable clauses,” making it important for buyers to understand which violations come with an opportunity to correct the problem and which can lead directly to termination. She also recommended removing or limiting liquidated damages provisions, which can require a former franchisee to keep paying royalties after termination. A personal guarantee can make the owner individually responsible for those obligations.

The Franchisor Matters, Too

The agreement also formalizes a relationship that both sides will have to live with for years. Bobby Cleveland, president of Verlo Mattress, said on 1851 Franchise's “Meet the Zor” podcast that the company turns away financially qualified candidates when they aren't a fit for the brand.

“We’ve turned down a lot of people who were very well capitalized, but they just didn’t fit the human mold of what we’re looking for for somebody being a good steward of our brand in the market,” Cleveland said. “When you think about a franchise agreement, you’re committing legally to, in our case, a 10-year relationship. You want that to be with somebody you like.”

Multi-Unit Deals Add a Second Contract

Buyers committing to multiple locations may also sign a development agreement that sets opening deadlines for each unit. Emmanuelle Hardy, vice president of franchise development at Ellie Mental Health, described the company's approach on 1851 Franchise's “Franchisor Hot Seat” podcast.

“A lot of people commit to several clinics. However, we do have a development agreement,” Hardy said. “They have on average three clinics. We don’t expect them to open three clinics at once.”

Missing an opening deadline can have serious consequences. Center said some agreements allow termination after notice without giving the franchisee a chance to cure. Buyers should discuss protections for delays outside their control, such as permitting problems, before committing to a development schedule.

Practical Takeaways: What to Check Before Signing

• Hire a franchise attorney. Find an attorney who specializes in franchising to review the FDD and agreement. Make sure they examine renewal and termination terms, personal guarantees and any liquidated damages provisions.
• Understand your exit options. Look at transfer restrictions and non-compete clauses together so you know what happens if you decide to sell or leave the business. Talk to former franchisees about how their exits went.
• Review development deadlines. If you're committing to multiple locations, find out what happens if you miss an opening deadline. Ask whether extensions are available when delays, such as permitting issues, are outside your control.

A franchisor may not be willing to change every provision a buyer raises concerns about. Still, understanding the terms for renewal, termination, guarantees and transfers before signing can help buyers know what they're committing to and what options they'll have if their circumstances change.

For more information about the legal side of franchise ownership, check out these related articles on 1851 Franchise:

• Important Legal Considerations in Franchise Agreements and Contracts
• Franchise Disclosure Document: Item 17
• What Is a Franchise Lawyer and Why Would I Need One?