Do not sign a franchise agreement until you get these provisions changed!
Gag Rules. Some franchise agreements now prohibit franchisees from discussing any aspect of their franchise experience with anyone outside the system. This defeats the FTC rule and other state disclosure laws which require lists of terminated franchisees to be provided to prospective franchisees.
* Franchisor Venue Provisions. These provisions require franchise disputes to be litigated or arbitrated in the home state of the franchisor. This not only increases costs for the franchisee, but also allows the franchisor to litigate, arbitrate or even mediate on their home turf.
* Lack of Reciprocal Cure Periods. Many franchise agreements give the franchisor 30, 60, or 90 days to cure any alleged defaults; some even do not allow the franchisee any remedy if the franchisor defaults. On the other hand, some franchise agreements provide for no cure periods for any alleged default by the franchisee. What is good for the goose is certainly good for the gander.
* Nonreciprocal Noncompetition Covenants. Many franchise agreements have oppressive post-term noncompetition covenants, both in terms of duration and geographical scope. At the same time, many franchise agreements allow the franchisor to place competing units pretty much where they want. If the franchisor wants protection from the franchisee after the agreement expires or terminates, why shouldn’t the franchisee be entitled to the same protection during the franchise agreement?
* Sole Sourcing Requirements. Many product-oriented franchise systems require franchisees to purchase products solely from the franchisor or from suppliers designated by the franchisor. No allowance is given to purchase from alternate sources even if quality standards are upheld. This leaves the determination of the gross margin achieved by the franchisee solely in the hands of the franchisor.
* Mandatory Subleases with Rent Overrides. Many franchise systems require the franchisee to sublease the franchised premises from the franchisor who has in turn leased the premises from the landlord. This places the franchisor in the real estate business and able to net a profit essentially without risk. In addition, the fact of these overrides and the amount of them are rarely disclosed in franchise offering circulars.
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