Franchising Laws

ARF Law Firm regularly act for various franchisors and franchisees. Our clients include manufacturers and retailers of consumer goods. Distribution and Franchise Agreements are regularly reviewed and drafted by the firm in light of local laws, including competition laws.

Practice Areas

• Negotiating and drafting franchise brokerage and finder’s agreements.
• Due diligence for insurers, lenders, investors and purchasers of franchisors.
• Counseling franchise brokers on franchise law compliance.
• Assisting in structuring licensing and distribution arrangements.
• Structuring dual- or multi-party arrangements.
• Advocacy of multiple unit franchisee interests.
• Registration of multiple unit franchise and co-branding agreements.
• Representation of franchise suppliers in contract negotiations.

International Franchising

As many of our clients expand beyond the territorial confines of the Pakistan, we provide advice concerning their expansion abroad. We have relationships with various attorneys in other countries who assist us in providing the local perspective on expansion within a particular country.

Services for Franchisees

• Evaluation of Uniform Franchise Offering Circulars (UFOCs) for prospective franchisees.
• Pre-purchase negotiation of franchise agreements.
• Review of leases for franchised business premises.
• Formation and guidance of franchisee associations; collective bargaining.
• Assistance in canceling or terminating franchise agreements.
• Franchisee mediation, arbitration, and litigation support.

Services for Franchisors

• Evaluation of the feasibility of offering a specific franchise or business opportunity.
• Assistance in developing and structuring new franchise systems.
• Identifying and recruiting skilled franchise personnel.
• Accurately describing franchise systems in readable and inviting disclosure packages.
• Use of sophisticated computerized forms to produce draft documents quickly.
• Federal and state trademark registration.

Franchise Agreement

The franchise agreement is the cornerstone document of the franchisee–franchiser relationship. It is this document that is legally binding on both parties, laying out the rights and obligations of each. A sample agreement may either be attached to the disclosure statement or presented separately. Either way, you are entitled to receive it as a prospective franchisee five business days before signature. You should have it reviewed by a lawyer familiar with franchise matters–especially since most agreements are extremely one-sided in favor of the franchiser. No one should enter into a franchise and expect to have an evenly drawn contract.

The agreement will contain provisions covering, in considerable detail, the obligations of the franchiser and franchisee regarding operating the business; the training and operational support the franchiser will provide (and at what cost); territory and any exclusivity; the initial duration of the franchise and any renewal rights; how much Franchisee must invest; how must deal with things such as trademarks, patents and signs; what royalties and service fees will pay; tax issues; what happens if Franchisee should want to sell or transfer the franchise; advertising policies; franchisee termination issues; settlement of disputes; by the company, operating practices, cancellation, and attorney fees.

Franchisee Termination

At the outset, franchisers generally have the right to choose the parties they wish to do business with and may use their own judgment in entering into a new franchise relationship. Depending upon the appropriate state law, a franchiser may have the right to terminate a franchise or to refuse to renew a franchise for “good cause” – such as failure to meet sales quotas or lack of quality standards. Many contracts are drafted in such a manner that it is probable that a franchisee would breach it at sometime allowing the franchiser to cancel the contract or not renew it. Some state statutes require specific conditions, such as failure to meet monetary obligations, correct defects, or quality standards, for termination or for non-renewal. Other states also require special notices within certain time periods be provided to the franchisee before termination or non-renewal.

When a franchisee is not in compliance with his or her obligations under the franchise agreement, the decision to terminate, along with a thorough analysis of all pre-termination options, is critical. A termination, like any decision to end a long-term relationship, has many implications. In most cases, there are options short of termination, which, under the right circumstances, may motivate a franchisee to cure, and thereby save the relationship and protect the cash flow associated with the unit. In-term actions seeking damages for breach of the agreement along with attorneys’ fees are often an effective tool to garner compliance.

We have worked through literally hundreds of franchise disputes, and have a track record of achieving prompt resolutions of even the most acrimonious disputes.

Franchise Bankruptcy

In a challenging economy, it is not unusual for certain franchisees, for a variety of reasons, to become insolvent. Generally, insolvency does not happen over night, rather, a situation deteriorates over time. We provide advice to our clients with respect to working through challenging financial circumstances, with the goal of preventing the assets of the franchise from becoming part of the debtor’s bankruptcy estate. In cases where bankruptcy has already been filed, we assist franchisors in garnering almost immediate post-petition contractual compliance, and obtain orders from the bankruptcy court to protect the franchisor’s interests. In other contexts, we have represented franchisors and area developers in acquiring assets through bankruptcy, free and clear of all liens, claims and encumbrances.