The Top Ten Dirty Franchise Provisions

November 4, 2013

Before signing on the dotted line of a franchise agreement, prospective franchisees are strongly advised to read and re-read the fine print with the assistance of the best Rochester consulting professionals from Rizzo, DiGiacco, Hern&Baniewicz. Otherwise, you may just find yourself being held hostage to the two or more of the top ten dirty franchise provisions! 1.      Gag Order

Prohibitions on discussions about any aspect of the franchise experience with anybody outside of the system are a clear violation of disclosure laws enforced by government agencies including the FTC. These laws require that the list of terminated franchisees should be provided to prospective franchisees for their reference. 2.     Unilateral Amendments

Rochester consulting professionals are on hand to ensure that the franchisee will be notified of changes in the franchiser’s policies and practices including the provisions on the contract, operations manual, and other pertinent documents. Many of these changes will require the expertise of a Rochester CPA such as in the case of the computation of total franchise fees. 3.      Nonreciprocal Non-competition Covenants

Ask the franchiser to change the oppressive provisions related to nonreciprocal noncompetition covenants especially during the duration of the franchise agreement. These covenants can include permitting the franchiser to place competing units within close distance of each other, thus, lowering both of their sales. 4.      Lack of Accountability

Yet another provision that Rochester consulting professionals will see as a red flag is the lack of accountability for the advertising fund. The franchiser must be held accountable and responsible to the franchisee about the money spent for advertising as it impacts on the latter’s market and money. 5.      Lawsuit Venues

In the case of lawsuits between the two parties, the franchisee should be provided with the opportunity to defend itself in its home state instead of wherever the franchiser wants it to be, say, its home state. This will be disadvantageous to the franchisee. 6.       Lack of Mutual Cure Periods If the franchiser is provided with specific days to cure any alleged defaults on his part of the bargain, then the franchisee should also be provided with the same right. 7.       Restrictive Sourcing Requirements Many issues wherein Rochester consulting professionals have mediated involve restrictive sourcing requirements wherein the franchisees are required to source their raw materials, supplies and even equipment solely from the franchiser and/or franchiser-designated suppliers. 8.       Kickbacks to Franchisors Instead of passing promotional fees, commissions and kickbacks provided by vendors who sell goods and services to the franchisee, the franchisor pockets the money. The opposite should be clearly stated on the franchise contract. 9.       Lack of Mutual Legal Fee Terms

In this scenario, the franchisee is required to pay all of the legal expenses incurred by the franchisor in the event of a lawsuit between the two parties. But when the franchisee wins the lawsuit, it will most likely shoulder the legal costs, thus, putting it at a disadvantage despite the win. There should be a provision for reciprocal rights and responsibilities for legal fees incurred. 10.     Substantial Differences in Renewal Terms

Even when the original franchise agreement goes smoothly, franchisees are still well-advised to secure the services of the best Rochester consulting professionals on the renewal phase. The new contract may have significant differences that can put the franchisee at risk in the future.

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