Getting into a franchise is fairly easy. You sign a long franchise agreement and numerous attachments, and wham – you’re in! But while getting into a franchise is simple business, getting out is not. If you are looking to buy a franchise, you need to understand some important concepts. In the next few posts, I will address several important things to consider before you pull out your pen and sign that franchise agreement.
You Are Signing A Legally Binding Contract. One of the most important things for franchisees to understand is that a franchise agreement is a legally binding document. Franchise agreements usually last between ten and fifteen years, and franchisees are not typically allowed to just abandon the business and walk away – even if the business is failing. I am surprised by the number of people who do not understand this point, so it is certainly worth mentioning.
Why would a franchisor refuse to let an unhappy franchisee out of the system? There are many reasons. For example, some franchisors do not want to show attrition in their FDDs. They do not want prospective franchisees seeing that existing franchisees are leaving the system. Some franchisors want to avoid signaling to other franchisees that they too can simply walk away (which can result in the downfall of the system). Because franchise agreements are lengthy and often ominous, franchisees must fully understand what they are signing. It may also be possible to create certain safeguards where franchisees can exit the system. However, once the agreement is signed, the opportunity to create such safeguards disappears.
In my next posts, I will discuss non-competition and non-solicitation agreements, and how they can prevent franchisees from maintaining a business after leaving a franchise.
ABOUT BRIAN LOFFREDO
Brian Loffredo is a commercial litigator with more than seventeen years of experience representing clients in the franchise industry. Brian routinely assists clients during the licensing and franchise/FDD review process, as well as with the resolution of franchise-related disputes, including those involving terminations, territorial disputes, fraud, disclosure/relationship law violations and breaches of contract.
In addition, Brian represents and counsels clients in the construction industry on matters involving litigation, construction defects, licensing and compliance, collections, mechanic’s liens, payment bond and Miller Act claims, contract drafting, and compliance with home improvement laws and other construction industry laws.
Brian also has extensive experience representing financial institutions with workouts, collections and residential / commercial foreclosures.
ABOUT OFFIT KURMAN
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