Your expansive guide to franchising’s legal frameworks, and what a business should look for when it comes to comprehensive counsel.
Interview by Kieran McLoone, deputy editor for Global Franchise.
The legalities of franchising might not be the most outwardly thrilling subject associated with this dynamic and global business model, but it’s a specialism that is intrinsic to international success.
Protecting your brand from a whole litany of legal troubles can only be done with an experienced, knowledgeable team. Foregoing proper system and processes will open a brand up to issues which could damage not only the brand’s reputation, but could also jeopardize an entire franchise network.
To cover everything you need to know and highlight some key trends within the industry, we’ve spoken to several experts from a plethora of legal firms and have prepared a crash course for brands with global ambitions.
KM: What are some often-overlooked aspects of international franchise expansion?
CZ: Although most of us won’t leave home without checking the weather forecast, it is surprising how many franchisors target a country for development without having a basic understanding of how the changing franchise regulatory climate may affect their plans. Companies embarking on international franchising should be asking about the cost of preparing necessary documentation for transactions in a target country, the cost of filings and registrations (when required) and the time required to complete an international transaction.
We know from monitoring websites that some franchise lawyers feel competent to advise franchisors about international expansion without even knowing whether franchise regulations exist in the countries that their clients have targeted. The existence of a franchise law is only one of several dozen inquiries an international franchise lawyer should be concerned about when advising a franchisor about a new deal in a new country.
KM: What errors have you seen franchisors make when partnering with a legal team?
ES: Using somebody not that experienced with franchising. I have seen franchise agreements that could definitely be more protective for a franchisor. For example, thinking about how you protect your IP in the agreement, and particularly how you protect yourself in the instance that something goes wrong with a franchisee. Do you have really good termination provisions, in the event that a franchisee has done something wrong?
You look at the termination clause and if you weren’t experienced then you might think, “Gosh, that’s horrendous. There are 20 termination events there!” But they’re there for good reason because a franchisor does need to pull out of that relationship if they need to, to protect their wider network. They’re not just dealing one-on-one, it’s a bigger picture.
I’ve seen good restrictions and badly drafted ones, and it comes with the experience of knowing what’s likely to be enforceable, what’s likely to be considered reasonable, and how far you can go with the drafting of those.