Franchising Today - Summer 2016 - 22
VALUATION 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. RIGHTS 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. PERSONAL GUARANTEES 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 the business. 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 franchising-today.com SUMMER 2016 see, seek a waiver or release of personal guarantees based on the strength of your company's balance sheet. INTEGRATION OR MERGER CLAUSES 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 OF FIRST REFUSAL 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 at scott.ratchick@chamberlainlaw.com, scott.augustine@chamberlainlaw.com or jill. johnson@chamberlainlaw.com.