If you are a businessperson, sooner or later you will have to deal with a lawyer. In the franchise world, it helps – tremendously – to deal with attorneys who understand franchising and franchise law. It doesn’t matter whether you are a franchisor or a franchisee; no matter which side of the transaction you happen to be on, you will want an experienced franchise attorney to be on the other side.
Surprisingly, the level of franchise law knowledge among attorneys who actually get involved in franchise transactions varies considerably. The majority of the time, lawyers who are knowledgeable in franchise law are on both sides of the transaction. But that is not always the case. Sometimes, the attorney on the other side is inexperienced, and “dabbling,” in franchise law.
This is the first of a two-part piece on why these dabbling attorneys can hinder a transaction, or worse, do harm to their clients.
This part one looks at it from the point of view of the franchisor, which is negotiating with a prospective franchise purchaser. Let’s assume this prospective franchisee is the party represented by a lawyer without franchise law experience. This situation is much more common than the reverse – where it is the franchisor, and not the franchisee, that has inexperienced counsel.
Why Franchise Agreements are Different from other Business Contracts
Some, but not all, franchise agreements are negotiable. The most significant problem involving inexperienced counsel occurs when the franchisor is otherwise willing to negotiate with the prospective franchisee.
If a prospective franchisee seeks legal counsel, s/he will typically seek out that person’s usual business attorney, if there is one. If the prospective franchisee doesn’t have or know an attorney, that person will ask friends and family for referrals. Frequently, the referral is to a business attorney who has little or no experience in franchise law.
The business attorney may be tempted to do the work, instead of referring it to another lawyer. After all, the terms in franchise agreements look a lot like the ones you might find in other types of business contracts. But the problem is that the franchise relationship isn’t a typical business relationship. It is critical for the attorneys on either side of a negotiation to understand what makes franchising different.
Specifically, franchise agreements are (on the whole) much more one-sided than other business contracts. This is for a good reason: the provisions are there (in one way or another) to protect the health and integrity of the system as a whole, including its intellectual property and goodwill. Protecting the system is paramount, because if the system fails, all of its franchisees lose.
An attorney representing either side of the franchise transaction needs to understand this basic truth at the core of franchising. When s/he has experience in franchise law, counsel will understand which provisions are typical or atypical. They will also understand which terms may be negotiable and whether, taken as a whole, the franchise contract is more or less one-sided than is typical for those agreements. Having this experience will make the negotiation more productive and efficient. A more efficient negotiation will typically result in lower attorney fees.