How to avoid a big legal bill

Sarah Stowe

There are a few tips of the trade that can help you avoid a big legal bill when you are ready to buy a franchise.

1. Find the right lawyer

Franchising is a unique area of law, and the law firm you engage to work on your franchising matters must be experienced in franchising law.

Price is another important factor. Lawyers may charge by time or by fixed fee. Fixed fees can provide you with certainty and peace of mind throughout the process.

2. Get the right advice

Not every franchise document needs to be reviewed. At a minimum, your lawyer should review the:

  • Franchise Agreement
  • Disclosure Document
  • Sale of Business Agreement (if applicable)
  • Lease of your premises (if applicable)
  • Occupancy Licence Agreement (if applicable).

In relation to the franchise agreement, you should seek advice about the important aspects. These include:

1.    Payments, operating costs and unforeseen capital expenditure

Fees are normally specified at the end of the agreement and in the disclosure document. However, some fees (or a franchisor’s ability to change fees) can be found hidden away within the agreement.

2.    Term and renewal

Any options to renew the agreement for further terms may have preconditions attached, such as the payment of renewal fees, refurbishment requirements or other  terms that will require you to spend further money.

Ideally the term of the lease of the premises should match the term of your franchise agreement.  

3.    Territory

Your territory may be exclusive or non-exclusive. Even with exclusive territories, significant rights can be reserved by the franchisor and/or granted to others.  

4.    Minimum performance criteria

You must understand the minimum performance criteria and the consequences of failing to meet such criteria.

5.    Termination

Understanding the grounds for termination is imperative, because franchisors generally have far more grounds to terminate than  do franchisees.

6.    Restraints

Most agreements provide for a restraint period at the end of the term. This can limit your options after the end of the agreement.

3. Give them what they need

Reading all of the documents, considering the legal issues and providing the advice you need takes time. Make sure you provide your documents to your lawyer early to allow enough time for them to do this and respond to your lawyer’s queries as soon as you can.

4. Negotiating amendments

An experienced franchising lawyer will highlight clauses that are contrary to the Code, onerous or unusual. Your lawyer can negotiate with the franchisor to amend these clauses, but this also takes time and can be costly. You may prefer to negotiate yourself after receiving your lawyer’s advice.

5. Further advice

Also consider whether you need advice about:

  • asset protection and personal guarantees

corporate structuring

  • tax
  • employment law
  • privacy law
  • consumer law compliance

If so, choose a law firm that can provide advice about all issues. This will streamline the process and is another way you can avoid a big legal bill. 

  • This article was written by Louise Wolf, senior associate, and Jack Newton, graduate at MST Lawyers.

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