Franchising Today - Summer 2016 - 22
your understanding of the agreed-upon terms in writing to the franchisor.
Your written communications and
notes can have a significant impact if a
dispute arises regarding the meaning
or application of a vague or ambiguous
term in the franchise agreement.
A franchise agreement may require
offering to sell the franchise to the
franchisor before someone else.
or different terms from other franchisees. Some franchisors negotiate royalties, fees and other terms to attract
or retain certain franchisees.
Does the franchise agreement require
a personal guarantee from the franchisee's principal, and if so, for what
debts and liabilities?
Establishing a corporate structure
like a corporation or a limited liability company to operate a franchise will
not shield you from personal liability
if you sign a personal guarantee. You
may also remain personally liable under a guarantee after you sell or quit
Negotiate to limit the duration of
personal guarantees so they expire
after a number of years of ongoing operation. If you are a multiunit franchi22
see, seek a waiver or release of personal guarantees based on the strength of
your company's balance sheet.
Communicate in writing and be wary
when the franchisor says, "Don't worry about..." or "We can deal with that
later." Most franchise agreements
include provisions stating that only
the written terms of the agreement
will be binding, and that nothing previously discussed or promised will be
enforced unless expressly contained
in the franchise agreement.
To help protect yourself in the event
of a later dispute, take notes immediately after conversations you have with
the franchisor in meetings and phone
calls leading up to the signing of the
franchise agreement. Communicate
Your agreement may require you to
offer to sell your franchise to the franchisor before you can freely sell it to
someone else. This may make your
business less appealing to a third-party buyer and thus less valuable for sale.
For example, a third-party buyer
may have to wait for the franchisor's
right of first refusal period to expire,
or to execute a new franchise agreement that may not include the terms
of your potentially more favorable
agreement. Try negotiating the right
to sell to another existing franchisee,
to a member of your existing ownership group or to a family member.
Maximize your options.
A franchisor's willingness to negotiate varies, but keep a close eye on these
issues. What may seem like contractual overkill on the front end can become
critically important if a problem ever
arises under the agreement and can
help ensure success down the road.
Scott Ratchick, Scott Augustine
and Jill Johnson are attorneys
with Chamberlain Hrdlicka (Atlanta). Ratchick is a commercial trial
attorney and represents franchisees in disputes with franchisors,
landlords and employees. Augustine
is a business attorney and represents franchisees in franchise
agreements, purchase agreements,
finance agreements and real estate
matters. Johnson is a commercial
litigator representing franchisees in litigation
matters as well as lease negotiations. They
may be reached at (404) 659-1410 or by email
email@example.com or jill.