Do I Need A Lawyer To Advise Me About A Franchise Agreement?
BY JOHN PRATT
Entering into a franchise is often the most important financial decision that anyone makes; in almost all cases, if it goes wrong the financial consequences are potentially much more serious than with, for example, an unsuccessful house purchase. This is because when you buy a house it may go down in value but it is most unlikely that any decrease in value would be substantial, whereas when you buy a franchise if the business is unsuccessful it could quite literally have no value.
Franchisors generally make it clear to prospective franchisees that their franchise agreement will not be amended and they must either “take it or leave it”. There are good reasons why franchisors adopt that approach because, otherwise, they would have an administrative nightmare of having a very large number of different franchise agreements to monitor and enforce.
You might say that if there will be no amendment what is the point of paying a lawyer to review the agreement but, as with a house purchase, the defects in a house will remain with the house whether or not you have a survey, but a survey gives you the comfort of knowing what is wrong before you commit to a purchase and also commit to putting the defects right.
Similarly, with a franchise report you will know what is wrong with the agreement, which of course has been prepared by the franchisor’s lawyers to protect the franchisor, not to make life easy for a prospective franchisee!
Franchising is an area of law where specialist advice is essential – often, lawyers with no experience of franchising require amendments to the franchise agreement that no franchisor could accept. The lawyer who acted on your house sale, speeding offence or indeed in relation to any commercial matter, is most unlikely to have sufficient experience of franchising to enable you to receive the best advice. Unfortunately, too many lawyers claim to have expertise where they do not.
The simplest way to protect yourself is to go on to the British Franchise Association’s website, which lists affiliated lawyers, ie lawyers that the Association is satisfied know about franchising.
Not all of the franchise lawyers on that list have as high a reputation as others and so, in an ideal world, you would find out the reputation of the lawyers you approach for a quote for preparing a franchise agreement review and base your decision on reputation as well as price.
You would expect to pay approximately £400 plus vat for a review that highlights provisions in the franchise agreement that are unusual, unfair or unworkable. The report should also explain, in English and not legalese, the most important provisions of the franchise agreement. The lawyer you use should resist the temptation to rewrite the agreement, which is an expensive waste of everybody’s time.
If the report highlights serious issues then you would, notwithstanding what the franchisor has told you about not changing the agreement, be able to go back to the franchisor and ask him to give you reassurance in relation to those issues.
John Pratt is the immediate past Legal Advisor to the British Franchise Association and a past Chair of the International Bar Association’s International Franchise Committee and Director of the American Bar Association’s International Franchising Division.
He has written “Franchising: Law & Practice”, “The Franchisor’s Handbook” and contributed the franchise section of a number of franchise publications. He is the senior partner of Hamilton Pratt, Europe’s largest specialist franchise law firm.
