Iowa Corporate Lawyer & Attorney : Rush Nigut of Brick Gentry Law Firm : Serving Des Moines, Cedar Rapids, Davenport, & Sioux City

While discussing a franchise case recently an attorney working with me observed that the franchisor really didn't agree to do anything for the franchisee in its franchise agreement.

Unfortunately most franchisees are under the mistaken belief that franchisors will provide all kinds of support.  When it doesn't happen and the business relationship has fallen apart, the franchisee is surprised to learn that the franchisor isn't contractually obligated to do much of anything.  Which generally means that if a lawsuit occurs the franchisee may have very little recourse.

The solution:  Franchisees should discuss specifically with the franchisor exactly what the franchisor is going to do to support the franchisee during the term of the agreement.  If the franchisor makes promises that are not contained in the franchise agreement, ask for those promises in writing.  If the franchisor won't put those promises in writing be ready to walk.   And never, I mean NEVER, believe the franchisor that tells you they won't hold you to the terms of their written agreement.  You can be assured that the franchisor's lawyer in any lawsuit will never acknowledge that such a statement was ever made and most franchise agreements are written so that any such statement could not be used as evidence anyway.

Ulitimately there is no validity to the claim that franchise operations are less likely to fail than non-franchise operations.  A franchisor that just gets you into business doesn't offer you much.  Always do your homework, ask the tough questions and demand answers.

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When searching my feed reader last night I ran into this distressful thread on BlueMauMau.org, a pro-franchisee Web site.  In the comments below the initial post, franchise lawyer Richard Solomon says he is giving up on trying to help franchisees.  Richard says,

I'm about ready to climb down off the due diligence cross and go do something less stressful, like crisis management counseling. In crisis management, people really do want help and are willing to provide a budget for it.

I'll admit it.  There have been times where I have felt the same way as Richard when trying to assist franchisees in reviewing their franchise agreement and conducting due diligence.  There are times when a franchisee is going to do the deal come hell or high water.  But at this point I am not willing to stop trying to help these people. 

I think Richard's point is simple.  Isn't it unbelievable that people would be willing to invest their life savings in a franchise business but refuse to spend a little time and small expense to properly conduct due diligence?

The purpose of a franchise agreement and disclosure document review is not for the lawyer to talk the client out of their franchise business opportunity.  An appropriate review will help point out the legal and business risks and possible areas of negotiation.  After the review, the client must still  make their own decision about whether to proceed forward.  I have been told by more than one client that a review opened their eyes to help them better understand the franchise opportunity.  Some moved forward while others backed away from their deal.

I have been very fortunate to work with prospective franchisees that are serious about their due diligence.   Recently I had a prospective franchisee client that encountered all the classic warning signs from a franchisor.  I know this client felt disappointed the deal didn't go through but I was sure proud they were willing to walk away.  Only someone serious about their business would have done so.   

So don't give up Richard (and other franchisee lawyers).  It takes just one client to make you see this is all worthwhile and they definitely need our help.

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