Run, Don’t Walk

Can you walk away from buying the perfect franchise business for you, if the franchise agreement has one awful, horrible clause? Ok, if there’s one, there are likely more.

When I started my law practice, franchise agreements seemed pretty balanced.  You would usually find franchisor’s approval rights were softened by the qualifier “franchisor’s consent will not be unreasonably withheld.”   This would give someone who wants to buy a franchise some assurance that the franchisor will not arbitrarily refuse to approve the applicable request from the franchisee.

Unfortunately, now chances are slim that you will find any promise to act reasonably in a franchise agreement.  Some of the franchise agreement’s most oppressive clauses are reactive, written out of fear that the franchisor will be held accountable in any way for the franchisee’s unsuccessful business.

Basically what franchisors fear is that if something goes wrong, the franchisee will sue the franchisor.   Both an inability to take responsibility for results and a tendency to put the blame on someone else are common characteristics in the franchise world.

The desire to take control and to avoid accountability are competing motivations that experienced franchise lawyers work hard to satisfy for their franchisor clients.  As franchising has matured, franchise lawyers have learned from their franchisor clients where problems arise in the franchise relationship and what they can write to give the franchisor the best options and the most control.  

Do You Really Need It!

While I have done my share of this in drafting franchise agreements, in recent years I have been taking stock of what I put in my agreements.  Is a harshly restrictive provision necessary?  Does the client really want it? Understand it?  Need it??

Other than promising to train the franchisee on basics of starting the business, why should a franchisor commit to anything else, if it can sell franchises without continuing obligations? Why should a franchisor go out of its way to promise anything else?

It is clear that as long as franchise buyers sign franchise agreements that promise nothing except training and support to start the franchise business, but qualify all operational support with words like “may” and “in our discretion”, franchisors will not promise anything else unconditionally?  

Franchisors are only motivated to offer more balanced franchise agreements when prospective franchise buyers refuse to sign the deal they are offered. In other words, buyers need to learn to walk away.

For more information about Franchise Law, contact the Texas Franchise Lawyer