Buying into a Franchise? Get a Lawyer
Insight Cass Lintott explains how buying into a franchise also means knowing the laws governing it, and that’s where a good franchise lawyer can help.
Buying into a franchise also means knowing the laws governing it, and that’s where a good franchise lawyer can help.
Anyone entering into a franchise agreement with an established franchisor should know what they’re buying from the start, says an experienced franchise lawyer.
Cass Lintott, owner of Lintott Law in Calgary, AB, believes it’s important to hire a legal professional and an accountant before embarking on such a venture. Franchise agreements are specifically written to place all power with the franchisor.
Franchise Agreements are specifically written to place all power with the franchisor.
“There’s a requirement for what’s called a ‘duty of fair dealing’; to treat each other fairly. The idea of franchise legislation is to set out what information is to be provided to the franchisee in advance before they sign any agreements,” he explains. “Franchisees need this information in order to make an educated decision because once they’re in, their ability to make any changes or argue with the franchisor is almost nil.”
What to know before buying in
Lintott admits there’s little wiggle room in negotiating most agreements, though potential franchisees can seek better terms. Flexibility may increase if the franchisor is entering the Canadian market for the first time or a new franchisor altogether. Franchise agreements commonly last five years before they’re up for renewal.
The franchise fee usually isn’t amortized, requiring payment up front upon signing, plus a royalty and advertising fee. In some instances, the franchisor may direct the construction process, like with a restaurant franchise. Other agreements hold no such stipulations. There are multiple issues to consider depending on the nature of the franchise. For example, incorporating the franchisor can help “create a legal separation for third party liability,” Lintott notes, though it does add to setup costs.