Starting a franchise can be a rewarding venture, but it comes with its own set of challenges. One of the biggest hurdles is understanding the franchise agreement. This legally binding document outlines the relationship between the franchisor and the franchisee. Some clauses in this agreement can lead to disputes if not carefully examined. If you are entering a franchise agreement, here are five key areas you should watch out for.
Territory rights
Territory rights specify the geographic area where you can operate your franchise. Disputes often arise when these boundaries are not clearly defined. For example, if the franchisor opens another franchise too close to yours, it can affect your business. Make sure the agreement clearly outlines your exclusive territory.
Fees and royalties
Fees and royalties are another common source of disputes. These payments can include initial franchise fees, ongoing royalties and marketing fees. Sometimes, the franchisor may increase these fees without clear justification, leading to financial strain. Always read these clauses carefully and seek clarification if needed.
Operational control
Franchisors usually maintain a level of control over how you run your business. This can include guidelines on marketing, hours of operation and even the suppliers you must use. While this ensures brand consistency, it can also lead to conflicts if you feel too restricted. Understand these terms fully before signing the agreement.
Termination clauses
Termination clauses outline the conditions under which either party can end the agreement. Some franchisors include conditions that make it easy for them to terminate the agreement but difficult for you. This can leave you at a disadvantage. Ensure that these clauses are fair and balanced.
Dispute resolution
Lastly, pay attention to the dispute resolution clause. This section specifies how disputes will be resolved, whether through arbitration, mediation or court litigation. Understanding this process can save you time and money in the long run.
You do not have to deal with this alone
Running a franchise is a big milestone for anyone. At Zarco Einhorn Salkowski, P.A., we understand the uncertainty you might be feeling going through this process. If you are considering entering into a franchise agreement or are currently facing disputes, contact our office and schedule a free consultation to ensure that your business transactions are smooth and dispute-free.
