+ FRANCHISING NAVIGATING THROUGH YOUR FRANCHISE AGREEMENT April 5, 2015 PRESENTED BY: MAHESH I. PATEL.
Post on 23-Dec-2015
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+Patel & Associates
A trusted name forall your legal needs.
Mahesh I. PatelPatel & Associates, PLLC
2929 N. Central ExpresswayRichardson, TX 75080Tel: (972) 643-1813 Fax: (972) 231-0104
www.patellaw.net
+ Entering into the Franchise Relationship
We hope to quickly cover the Franchise Agreement negotiation highlighting key areas where some foresight and some insight can protect you over the full term of the Agreement.
We will cover: Entering the Franchise Relationship Choosing the Brand Understanding your Exit upon Entry Key Sections in Navigating the Franchise Agreement Living with your decision – Quality of Life Issues
+ Choosing the BrandThe Right Fit is Essential
Independent vs Brand
Understanding the Track Record with Franchisees
Monetizing the Loyalty Program
Old vs New Concepts
Old vs New Product
+ The Importance of Understanding your Exit on Entry
Termination on Sale
Termination for Cause
Liquidated Damages
Hidden Costs
Cost of Reflag and PIP (periodic renovations)
+ Key Sections in Navigating the Franchise Agreement
Personal Guaranty
Area of Protection
Liquidated Damages
Key Money (Development Incentives)
Marketing Fees
Royalty Fees
+Personal Liability
Limit Personal Guaranty (remove if minority owner)
Limit Personal Liability to amount of entity ownership (i.e. 35%)
Limit Personal Liability by a “burn-off” provision (i.e. up to 3 years)
Protect assets by creating Limited Partnerships/Irrevocable Trusts/Life Insurance Trusts/Homestead/401K Plans, etc. (see handout)
ABOVE ALL ELSE DO NOT IGNORE LAWSUITS/ARBITRATION
+ Living With your Flag Quality of Life Issues
Brand Standards
Fees
Brand Stratification
Brand Segmentation
Support
+Integration Clause
The Franchisor’s Best Friend?
Entire Agreement. The Preambles and any exhibits, addenda and appendices attached hereto are a part of this Agreement. This Agreement constitutes the entire agreement of the parties, and there are no other oral or written understandings or agreements between us and you relating to the subject matter of this Agreement, except that you acknowledge that we justifiably have relied on your representations made prior to the execution of this Agreement. Nothing in this Agreement is intended to disclaim the representations we made in the franchise disclosure document that we furnished to you.
+ FTC Franchise Rule Highlights
Persons Liable
All franchise sellers who participate in preparation of the disclosure document
Covers unfair/deceptive acts/practices
+ FTC Franchise Rule Highlights
Franchisor Initiated Litigation
Commenced previous fiscal year only
Material cases only
May group cases in categories
No elaboration required
Quarterly updates not required
+ FTC Franchise Rule Highlights
Financial Performance Representations
Still Not Mandatory!
Historic performance v. forecast
Mandatory statements Item 19 disclosures are permitted by law If no disclosure, warning not to rely on unauthorized disclosure
Cost data permitted
Update required
+FRANCHISEE PERSPECTIVETRUTHFUL DISCLOSURES
HONEST, GOOD FAITH PERFORMANCE
PROTECTION OF EQUITY
FULL PROTECTION BY THE LEGAL SYSTEM
+
The Written Franchise AgreementThe only evidence you’ll ever need?
Evidence to be considered along with the parties’ communications and conduct – and other factors such as market conditions.
+ UNIVERSE OF EVIDENCE
◄ Time ►
Franchise relationshipSystem historyMarket changes
▲Other Transactions
& Occurrences▼
+ WINNING ARGUMENTS
Freedom of Contract vs.Intent of the partiesReasonable expectationsBenefit of the bargainGood faith performanceFaithful to common purpose
Trusting? Naive?
OppressionBad faithOpportunisticUnforeseenTaking advantageAbusiveLyingUndeservingStealingReckless (arrogant)
+
Aid to Construction of Existing Terms
Fills “Gaps”
Requires Proper Motive
Protects Reasonable Expectations of Parties
IMPLIED COVENANT OFGOOD FAITH & FAIR DEALING
+
antitrust
statutory regulation & public policy
unconscionability
fiduciary duties (general & agency theory)
good faith & fair dealing
independent associations & collective bargaining
fair franchising standards
Franchisee Advocacy
+FRANCHISEE STRATEGY
Improve Bargaining Power!
greater due diligence document lack of negotiation support independent
associations demand collective bargaining seek mutual respect
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