Franchising is one of the most common business models in the world. With access to a franchisor's brand and products, a franchisee gets a ready-made business model. Franchise agreements often carry numerous legal restrictions, though. If you are a franchisee or plan to become one, you should retain the services of a commercial law attorney for the following five reasons.
Intellectual Property Rules
The intellectual property is often the centerpiece of a franchise agreement. Your business will display the franchisor's IP. Notably, this includes highly specific requirements regarding everything down to the shapes of the logos and the brand's color scheme. These rules apply to every potential use of the brand, including on uniforms, displays, the building, and in ads. Violations of these IP rules can lead to warnings, penalties, or even the cancellation of the agreement.
Renewals and Expansion
Most folks who settle into the franchise model elect to renew their agreements. Some even start adding franchises. A business law attorney should advise you during both processes. Particularly, you'll need a lawyer to keep an eye out for potential changes in the franchise agreement. Depending on how onerous new terms might be, this could affect whether you continue to franchise with that brand.
A franchise is almost always a grant of a specific territory. Effectively, you become the only party with the legal right to display that brand in the defined area. Territorial limits usually prevent you from expanding into other areas, but you might be able to purchase additional franchise rights.
One notable source of disputes is when a franchisor grants a new franchise in a nearby location. Even in a city with plenty of customer traffic, you probably don't want to see another franchise of the same brand appear across the street. Minimally, if the franchisor wants that level of density, they should give you a fair shot at purchasing the additional franchise.
Many franchisors require franchisees to enter into non-compete agreements. However, many franchisees expand their businesses by running locations for multiple brands. This may lead to questions about how those operations might conflict with the NCA. Does running a fried-chicken restaurant conflict with running a burger joint, for example? A lot depends on what the NCA terms are.
Finally, most franchisors maintain standards that go beyond the brand. Oftentimes, the standards extend to processes within the franchise location. The agreement may affect how you do everything right down to how you answer the phone, so compliance is critical.
Contact a commercial law attorney to learn more.