Effective franchise counsel helps prevent disputes, ensures regulatory compliance, and secures commercial terms that match business goals. For franchisees, legal review clarifies obligations, fees, and post-termination rights; for franchisors, properly drafted agreements protect brand standards and intellectual property while reducing liability in a multi-state marketplace.
Thorough contract drafting and proactive compliance limit ambiguity that often leads to disputes. Clear definitions of duties, performance standards, and remedies for breach provide predictable outcomes and reduce the likelihood of costly litigation. Early risk mitigation saves time and resources for both franchisors and franchisees.
Hatcher Legal takes a business-first approach to franchise matters, focusing on pragmatic contract drafting, risk assessment, and transactions that align with client objectives. Our services are tailored to franchisees and franchisors seeking practical solutions to operational and contractual challenges across various industries.
Ongoing monitoring focuses on fee compliance, operational obligations, and responding to franchisor inquiries or notices. When disputes arise, we pursue negotiated resolutions through the contract’s dispute mechanisms, seeking efficient outcomes that safeguard the client’s business interests and relationships.
The Franchise Disclosure Document provides a comprehensive overview of the franchisor’s business, including background on principals, litigation history, bankruptcy filings, fees, required initial investment ranges, and obligations of both parties. It also sets out the franchise agreement terms, territory descriptions, renewal and termination provisions, and financial performance representations if any. Reviewing the FDD carefully helps a prospective franchisee understand the complete scope of the opportunity and the franchisor’s track record. In addition to the FDD’s contents, evaluate the franchisor’s operational support, required training, and ongoing obligations to assess how the relationship will work in practice and what resources will be needed to succeed in the franchise system.
Royalties are ongoing payments usually based on a percentage of gross sales, though they can be fixed amounts in some agreements. Marketing or advertising fund fees are separate contributions used for brand advertising and promotional programs; the agreement should describe collection and use of these funds. These recurring fees can significantly affect profitability, so understanding their calculation and timing is essential. When assessing a franchise opportunity, model projected sales and fee impacts over time to determine realistic margins. Also review caps, audit rights, and reporting requirements to ensure fees are calculated accurately and that you have mechanisms to verify the franchisor’s accounting when necessary.
Many franchise agreements contain negotiable elements, particularly for experienced or multiunit buyers, though some franchisors maintain standardized terms for uniformity. Negotiable items may include territory boundaries, initial fees, transfer conditions, and renewal terms. Approach negotiations with clear priorities and seek written side letters or amendments to document any agreed changes. Even if a franchisor resists broad changes, limited concessions or clarifications can reduce long-term risk and provide important protections. It is wise to focus negotiations on areas with the largest commercial impact and to secure enforceable written modifications rather than relying on verbal assurances.
Territory clauses define where you can operate and whether competitors from the same brand may be placed nearby. Exclusive territories prevent franchisor or other franchisees from encroaching within a defined area, while nonexclusive rights may expose a unit to internal competition and reduced market share. Understanding these clauses affects site selection, marketing strategy, and revenue forecasts. When negotiating, seek clear definitions of territorial rights, customer protection measures, and remedies if the franchisor violates the agreement. Also consider how growth plans and population changes in the territory could affect future business viability and whether protections for expansion are included.
Transfers typically require franchisor consent, proof of buyer qualifications, payment of transfer fees, and adherence to the franchisor’s approval procedures. The agreement should specify timelines and conditions, including financial vetting and training requirements for the buyer. Understanding transfer rules is vital for exit planning and preserving the value of the franchise. Sellers and buyers should document obligations and expected approvals early in the sale process. Working through required consents, preparing necessary financial documentation, and addressing any outstanding defaults before transfer can expedite approvals and reduce the risk of complications during closing.
If a franchisor claims breach, review the notice, cure periods, and remedies specified in the agreement before deciding on a response. Many contracts provide opportunities to cure alleged defaults or pursue dispute resolution through mediation or arbitration. Addressing the claim promptly and documenting corrective actions can often avoid escalation to litigation. If informal resolution fails, follow the contractual dispute process carefully. Legal counsel can advise on compliance steps, develop a defense, or negotiate settlements, and can help assess whether the franchisor’s actions are justified or if they constitute a contract overreach that can be challenged.
Franchise relationships are governed by a combination of federal and state laws. The Federal Trade Commission requires disclosure via the FDD, while certain states impose registration and additional disclosure requirements. State contract and franchise statutes can affect enforceability of certain terms and provide remedies for unfair practices. Knowing applicable law is essential when negotiating or enforcing a franchise agreement. Parties should confirm whether the franchisor is registered where required and be aware of state-specific protections that may apply to fees, termination rights, or transfer requirements, as those rules can materially change the balance of rights and obligations.
Some states require franchisors to register their FDDs before offering or selling franchises within that state, often accompanied by supplemental disclosures or filings. Registration requirements vary, with several states imposing detailed review processes that can affect timing for sales or expansions. If you plan to operate in or solicit buyers from states with registration rules, confirm that the franchisor is compliant to avoid legal complications. Working with counsel can help identify applicable registration obligations and coordinate filings to ensure lawful offers and sales in multiple jurisdictions while avoiding penalties or delays.
Before signing, conduct due diligence on financial performance, franchisor stability, and franchisor support systems, and review the FDD and franchise agreement in detail. Speak with current and former franchisees, evaluate training and marketing support, and verify assumptions about site selection and projected sales. Understanding the practical realities of operating the franchise helps align expectations with actual performance. Consult legal counsel to assess contract provisions affecting fees, transferability, and termination to ensure the business model supports your financial and personal goals, and to confirm there are no hidden obligations that could jeopardize investment value.
Common pitfalls include accepting ambiguous termination clauses, overlooking audit and fee provisions, failing to verify territorial protections, and neglecting transfer restrictions that limit future exit options. Overlooking the franchise’s litigation or bankruptcy history and assuming verbal promises will be enforceable are additional risks. Careful review of the FDD, explicit documentation of negotiated changes, and verification of financial claims reduce these dangers. Engage counsel early to identify and address problematic clauses, secure necessary amendments, and ensure that operational realities and contractual obligations are aligned to prevent costly surprises down the line.
