Why use a specialist franchise lawyer?

There are lots of reasons why prospective franchisees do not use specialist franchise lawyers.  The first is that they have any existing relationship with a lawyer who, when asked, claims to know about franchising.  The truth is, unless they are affiliates of the British Franchise Association (“BFA”), they are most unlikely to have looked at a sufficient number of franchise agreements to be able to provide useful advice.  What any prospective franchisee really wants to know before he or she commits to a franchise agreement is how “tough” is the agreement and how unusual or unfair are the provisions in the agreement.  Most franchisees accept that franchise agreements are one sided in favour of the franchisor because franchisors, very understandably, want to protect their brand reputation and their know how which they are permitting franchisees to use.  Having said that, there are provisions which you simply would not expect to see in a franchise agreement if it is to be fair. Indeed the BFA takes the view that some provisions should not be in a franchise agreement of any member of the BFA because of their potential to be unfair. The BFA has a list of affiliated lawyers which can be accessed from the BFA’s website.

Generally speaking lawyers do not, as part of their franchise agreement review, offer a face to face meeting to go through the agreement because, to do so, would very substantially increase the costs of providing their review and so it does not matter where your lawyer’s office is situated because everything will be done by email and/or telephone.  The important thing is to make use of the services of a very well known and highly respected franchise lawyer because their views are likely to be listened to much more readily by a franchisor than the views of a less experienced franchise lawyer.  Obviously, you need to ensure that the lawyer you use is able to undertake the review at a “reasonable” price – although what you consider to be reasonable may not be what the lawyer believes is reasonable!  Affiliated lawyers will be able to give you a fixed price quote for preparing a franchise review – be very wary of those that do not do so or give you a range of prices.  Bear in mind that the cheapest quote may not be the best and make sure that you compare “apples with apples” in terms of what the expert lawyer will be doing.  Certainly for the three or four leading franchise law firms you may expect to pay more but, then again, the advice you receive may be more valuable.

Another reason often given for not instructing a lawyer (whether a franchise expert or not) to review the proposed franchise agreement is that the franchisor has indicated that the franchise agreement is in standard form and will not be amended.  In that case prospective franchisees argue what is the point of wasting money with lawyers.  A similar situation prevails when you buy a house or flat.  You will be buying the house or flat with all of its defects because the seller will not (generally speaking) put them right before the sale and, in any event, you may not know what the defects are because you are not an expert.  You could argue that as a result it is a waste of time obtaining a survey on the property because a survey will not change the condition of the property.  However, surveys will, at least, forewarn you as to the likely problems and enable you to calculate the cost of putting those problems right.  That is exactly what a franchise review does – it highlights those provisions which are unusual, unfair, or unworkable.  A sensible franchise lawyer will not seek to redraft the franchise agreement, which is likely to be an expensive waste of time, but will highlight those points which you need to consider before you sign the agreement.  Which of the negatives you raise with the franchisor is a matter for your judgment.  The franchise lawyer will simply give you the ammunition and it is up to you whether you raise issues with the franchisor.  Often how a franchisor responds to queries from a prospective franchisee on the agreement will tell you a great deal about the franchisor.

Remember also that generally prospective franchisees are “excited” about the franchise that they intend to take and it is helpful to obtain a dispassionate view.  If you are advised that the franchise agreement is very unfair, even by franchise agreement standards, that may not put you off but would it put off a prospective purchaser of your franchise business or even if a purchaser is not put off would it reduce the amount that the purchaser would be prepared to pay? You, or an inexperienced lawyer, will not know, for instance, the average continuing fee in a UK  franchise agreement is 8%, that franchisors should not seek to exclude or limit their liability to you, or that minimum performance obligations should not be set at more than 70% of average franchisee performance, but an experienced franchise lawyer will know all of these things and will be able to advise you.

Whilst, of course, most franchisors, especially those that are well established will not generally amend their franchise agreement for you.  For those franchisors that are less well established if your lawyer is able to point out provisions which are unusual, unfair or unworkable then you may be surprised at the franchisor’s willingness to make amendments.  You may also, of course, come to the conclusion, after receiving the report, that the franchisor who you thought was great – because it had told you that it was – in fact has a poor reputation, badly drafted agreement and unusual and unfair provisions – at that stage you would be able to walk away. Undoubtedly that would be a disappointment but it would be better to be disappointed before you hand over your life savings than after.