Franchise opportunities are potentially quite lucrative arrangements. With the right planning and preparation, you can enjoy the proven success of some of the biggest names in business.
However, franchise arrangements are complex and delicate — especially in major metropolitan areas like New York — and they need to be carefully planned and crafted by a reputable franchise lawyer. But if you do it right, a franchise agreement can be one of the most profitable business moves you make in your career.
With that in mind, here’s what you need to know about franchise agreements and what you need to do to start reaping the significant rewards that come with them.
Understanding Franchise Agreements
Franchise agreements are contracts that allow a franchisee (you) to pay for permission to engage in business under a franchisor’s (the owner of a specific name or brand) trademark.
This associated fee is usually no small amount of money, especially due to the territory rights for major metropolitan areas such as New York City, but the profit that comes with an established franchise quickly dwarfs the investment.
After a prescribed period of time, these agreements will need to be renewed — the cost of which could be a flat fee or a percentage of sales.
Franchise agreements also set out various limitations on how you are to conduct business. In order to understand all factors at play and secure a fair franchise agreement, retaining the services of a New York franchise lawyer is crucial.
Importance of Legal Representation in Franchise Negotiations
Franchising can be a very rewarding business model. However, franchise agreements are typically complex, which means they can lead to unintended consequences without experienced counsel.
A reputable New York franchise lawyer will protect your interests. They’ll help you gain a basic understanding of what you’re getting into, such as the fundamental terms and provisions of your franchise agreement.
With a lawyer handling your affairs, you can expect to remain in compliance with relevant New York and federal laws, and you’ll receive prompt solutions to issues that arise during business operations.
Finding the Right Franchise Lawyer
Before you sign anything, you should find competent counsel to protect your interests and rights. You’ll want to choose a New York franchise lawyer with demonstrated experience representing and guiding franchisees through various types of business deals. They should have a solid track record helping franchisees secure fair agreements, with client testimonials and case studies.
If you’re seeking an attorney with a successful track record helping franchisees secure fair agreements, turn to Lawyer For Business. Led by Andrea A. Willis, our firm is ready to set you up for success, offering steadfast representation as you take this next step.
Preparing for Negotiations
While it might seem like franchise agreements are cut-and-dry, there’s often room for negotiating between the franchisor and the franchisee — even in a competitive setting like New York. However, going into these negotiations blind only does you and your career a disservice. You’ll want to approach these discussions well-prepared and confident in your rights.
To this end, conducting research on the franchisor and their business is crucial, as is developing a thorough understanding of common franchise agreement terms and practices.
Keep in mind that having clear, realistic objectives is essential to your confidence in negotiation, as is the reliable support and guidance of a New York franchise attorney.
6 Key Points to Negotiate in a Franchise Agreement
Each line of a franchise agreement is important and should reflect your desires and goals. No agreement term is fluff. New York franchisees need an experienced lawyer to comb through their agreements and identify any issues that may be present.
Doing this work ahead of time protects you from future problems that could be difficult to resolve.
1. Financial Terms
Financial terms may include franchise fees, payment schedules, and royalty fees. The location of the franchise plays a major role here: In NYC and other urban areas, the cost would come at a premium, while you can expect to pay less in upstate New York.
Various fees may be negotiable, allowing you to agree on favorable payment schedules that reflect your business cycle or revenue-sharing arrangements that benefit both parties.
However, while recurring minimum payments can sound more reasonable for a new business, the costs can add up quickly — putting a young business in jeopardy if it’s struggling to turn a profit in the early days. A seasoned business attorney can help you negotiate down this recurring cost to a manageable amount.
2. Territory Rights
During negotiations, your lawyer can help ensure that your service area is free from other franchisees by negotiating clear territory rights in your contract — down to metrics such as zip codes, household sizes, population, etc.
Expansion rights for future growth may also be appropriate terms to negotiate, and your attorney can help prevent you from getting locked into overly restrictive clauses and terms that unfairly limit your future growth.
This step is vital in dense business areas like New York City, where individual stores belonging to the same franchise may be blocks away from each other.
Market research is key here to confirm that the territory is suitable for your needs. You might be 30 miles from the nearest franchisee, but if the territory is unsuitable, your revenue will suffer.
3. Duration and Renewal Terms
Franchise agreements commonly last between 5 and 20 years, requiring a renewal when the contract expires. Keep in mind that this is separate from New York’s annual requirement for franchisees to renew their business registration.
This often requires an additional expenditure in the form of a renewal fee, but keep in mind that there is no guarantee of renewal unless explicitly stated in the original agreement.
In most cases, the notice of intent to renew by the franchisee should be communicated not more than 12 months before the current agreement is set to expire.
During initial negotiations, your attorney can pursue favorable renewal terms, renewal fees, and other conditions.
4. Marketing and Advertising Obligations
Franchisors have various marketing duties intended to benefit the franchisee, including establishing a marketing foundation that promotes your brand and protects your trademarks. They might even have minimum ad spend requirements and require marketing to be handled by a firm selected by the franchisor — not the franchisee.
In many cases, these guidelines can help establish a consistent, profitable return on investment. In markets such as New York, where ad space comes at a premium, it can represent a significant cost that you are required to spend.
Keep in mind that franchisors want you to make money! As such, they’ll put in the work to learn your business goals and align their marketing efforts accordingly for maximum effectiveness and to maximize return on investment.
5. Operational Support and Training
Industry-standard franchise agreements will typically lay out requirements for the franchisor to provide training and operational support to franchisees and their teams.
Franchise attorneys step in at this point to ensure this training is comprehensive and sufficient for the franchisee. By ensuring access to high-quality training materials and on-site support, the franchisee can be well-prepared to thrive.
The cost of this training and any related travel often falls on the shoulders of the franchisee. While there’s no shortage of corporate training available in New York, drastically reducing travel costs, the programs themselves can come at a premium. To this end, your attorney may be able to negotiate favorable terms to ease your cost burden.
6. Exit Strategies and Termination Clauses
New York franchise agreements should have clear and reasonable termination clauses with precise instructions on how to end the relationship — or what factors may trigger the end of a relationship. Here, it’s important to watch for high termination fees, unfair notice periods, and unreasonable termination conditions, negotiating them if necessary.
When it comes to transferring ownership, it’s important to keep in mind that franchisors typically charge a transfer fee. It’s also worth noting that franchises do not automatically transfer upon death or disability unless negotiated upfront.
Strategies for Effective Negotiations
During franchise negotiations, both sides seek to protect their interests and establish the most profitable scenario for their own needs. This often leads to loggerheads and non-starters when performed without the help of reputable franchise attorneys.
Franchisees would do well to listen carefully throughout the process and ask good-faith questions in the pursuit of clarity. Mutually beneficial solutions should be explored in place of one-sided solutions.
In the end, you’re entering the hypercompetitive business realm of New York (one of the biggest commerce hubs in the world), backed by the name of an established franchise that’s proven to be successful. Therefore, while you might need to make concessions along the way, it’ll be well worth it once you start turning a profit.
In every case, seeking competent legal guidance and counsel is strongly advised to truly receive the protection and foresight you need to be successful. The earlier you find an attorney to represent you, the more effective their representation will be.
Handling Disputes and Conflict Resolution
Various disputes arise in New York franchise agreements, including breaches of contracts, franchisee encroachment issues, and issues relating to territorial rights, to name but a few. Open communication and compromise go a long way in these relationships, as does the placement of dispute resolution terms in the franchise agreement.
Ultimately, both the franchisor and the franchisee typically want to preserve the relationship if profitable. As such, approaching disputes with an amicable and mutually beneficial solution in mind should often be the goal. As is true at every other stage, having a franchise attorney representing you during a dispute is highly recommended.
Finalizing the Agreement
Finalizing a New York franchise agreement can be exciting. However, franchisees should ensure they are protected before signing. Sadly, excited franchisees all too often find themselves in bad deals because they trusted the franchisor to look after their interests when only a lawyer would do so.
An attorney will go through various steps before recommending you sign a franchisee agreement, including:
- Performing a thorough legal review of the agreement.
- Negotiating and finalizing any outstanding terms or issues.
- Clearing up any ambiguities or potential sticking points.
- Adding additional terms or addenda to the agreement.
- Obtaining all necessary signatures.
Once a valid franchisee document is signed, it becomes extremely difficult to change or terminate the newly created relationship. It is always worth the time and money to have an experienced franchise lawyer meticulously review the agreement and provide you with pertinent counsel.
Success Story: Negotiating 4 Franchises in Erie County, New York
One of our most notable successes involved a client in Erie County, New York, who sought to open four franchise locations. Here’s how we helped them achieve their goals:
Client’s vision: The client aimed to establish a strong presence in the competitive market of Erie County by opening multiple franchise locations. They needed robust support to navigate the complexities of multiple franchise agreements.
Our role:
- Comprehensive review: We began with a detailed review of the FDDs for all four franchises, identifying key areas for negotiation.
- Tailored negotiation: Once we understood the client's ambitions and market conditions, we crafted a negotiation strategy that addressed their specific needs for each location.
- Protecting interests: We negotiated favorable terms for franchise fees, territory rights, and support services, ensuring the client had a solid foundation for growth.
- Securing success: By securing advantageous terms, we helped the client save significantly on initial costs and ensured ongoing support from the franchisor.
Outcome: Thanks to our efforts, the client successfully launched all four franchise locations in Erie County. Their business thrived, benefiting from the strong agreements we negotiated, which provided a competitive edge and a pathway to profitability.
Ensuring a Healthy Franchise Relationship
Franchises can be incredibly profitable for hopeful New York business owners looking to hitch their success to an established name. However, it’s difficult to secure fair terms and begin a profitable relationship with a franchisor without outside help, and those who go into the process unprepared will likely be disappointed.
Fortunately, you can rely on the skill and experience of a seasoned franchise lawyer to protect your business and its future. For the ultimate protection of your interests, hire a reputable franchise attorney as early in the process as possible.
Lawyer For Business has helped hundreds of franchisees enter into healthy franchise agreements and is ready to work for you. Contact us today to start your franchise journey and lay the foundation for long-term business success.
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