If you equate hiring as lawyer with spending money, it may be time to think again, says Melissa Murray
Purchasing or selling a franchise is a substantial investment of time and funds yet some people are hesitant to involve lawyers, or only involve them at a late stage. Most franchisors are aware of this issue and therefore specifically require a franchisee to warrant that they have received independent legal advice prior to entering into the franchise agreement. It can be tempting to look to free internet-based advice.
However, this can cause issues later down the line as, more often than not, parties do not know the full extent of legal issues and services needed until it is too late. When looking for a lawyer, it is essential to take the following into consideration:
1) Experience
It is important to find out from your proposed lawyer their level of experience with similar franchise deals. Do they represent mainly franchisors or franchisees? Have they done any franchise deals in your specific sector – whether that be retail, food & beverage or services-based franchises. If your matter involves a dispute, are they specialized in such franchising disputes?
Although specialized lawyers can have a higher chargeable hourly rate, they can often complete their tasks quicker than non-specialised lawyers which can in turn save you fees in the long run. There are many independent legal directories where lawyers are ranked by clients/peers and where you can check the experience of the lawyer. Of course, a personal recommendation can always help. Legal directories that you can check include Who’s Who Legal, Legal 500 and Chambers & Partners which all rank lawyers depending on a number of specialisms.
2) Scope of advice and scope of services
It is also important to set out clearly with your lawyer what they will and will not do for you and what their advice is to cover – i.e. the scope of their advice. Many lawyers can give a fee estimate, some will give a fee cap and some will give a fixed fee with certain conditions should the required work change from the initial advice. These items will be set out in an engagement letter so you know what the fees are and what advice you will be receiving for such fees.
3) When to approach a lawyer – the earlier the better
Most lawyers and law firms offer a free initial meeting or call. This can help you work through the issues and help you decide as to whether you want move forward with that lawyer and/or the advice. Experienced lawyers can spot issues that you haven’t thought of, explain to you fully your rights and obligations under the agreement and draw on their experience with similar deals to let you know what is or what is not market standard.
It is common in franchise deals that lawyers are brought into the deal too late. Take the example of a client who signs a binding letter of intent but who no longer wants to proceed (this happens more than you would expect). With this example, if the client had sought immediate initial legal advice on the unsigned letter of intent prior to signing, this could have avoided further additional fees on advices around strategies to attempt to extract them from the deal and extensive negotiations around proceeding with the deal but on altered terms and conditions.
A simple quick check of the LOI and advice on its terms and conditions could have saved thousands in legal fees in dealing with the consequences after signing. Further with potential disputes, if you involve a lawyer early in the process, they can help protect your position, ensure that you do not make any statements or provide information that may impact your position later in the dispute, and at times can help you to resolve the dispute without going through costly litigation.
An experienced franchise lawyer can help you not only with the franchise agreement, but also with a number of related matters which can all help you save money in the long run. For example:
(a) Legal Structure For Your Business
Selecting the correct legal entity for your business can be one of the most important decisions you will make. From sole proprietorship and partnerships to a Limited Liability Company (LLC), there are numerous options to choose from when establishing your business. Each structure has its own pros and cons and the type of legal structure you choose can influence such things as your exposure to liability and how much you will pay in taxes.
Selecting the wrong legal entity for your business can cost you greatly in the long run. A lawyer will help you choose the most beneficial legal entity to ensure you accomplish your goals in the most profitable manner possible while simultaneously protecting your long term interests.
(b) Business Transactions and the Franchise Agreement
Understanding all of the terms of an agreement can be challenging, especially when the other party provides you with their standard form agreement. Some legal terms and conditions can be difficult to understand or the impact of such conditions may not be obviously clear. Your lawyer will work on your behalf to ensure you understand all the terms and conditions and that negotiations are in line with your needs.
Disputes are not only expensive, but they are also very time and energy consuming. Investing in a lawyer to help you review, understand and negotiate your agreement can help protect your interests and hopefully avoid any future disputes.
(c) Employment Practices
Labour laws can be complex and, particularly in the franchising sector, are changing rapidly. When hiring or firing employees and independent contractors, you need to ensure you protect your business and make sure your employment processes and policies are in accordance with the requirements set by the franchisor. Classifying an employee as independent contractor incorrectly can result in your business paying penalties.
Entering into third party agreements with entities such as UberEats to outsource delivery services, can result in breaches of your franchise agreement. Hiring a lawyer will ensure you’re adhering to all labour laws and the franchisor’s requirements, avoiding costly mistakes down the road.
(d) Lease Agreements
Most franchised businesses operate from leased space. Understanding the complexities of entering a lease agreement is important especially as a commercial lease is typically drafted on landlord friendly terms and for an extended period which may not match the term granted to you under a franchise agreement. A lawyer will ensure you understand what your business is agreeing to before you sign the lease and help ensure you don’t agree to any over-reaching terms that may negatively impact your future success.
The above list provides only a few examples of how a lawyer can save you money. An experienced lawyer will protect your interests from costly litigation and liability, and help your business succeed for the long term.
AT A GLANCE
Melissa Murray is head of the intellectual property team for Bird & Bird’s Middle East offices located in Abu Dhabi and Dubai. Qualified in Australia, she has practised law in the UAE for the past 11 years and specialises in assisting international brands expand into the Middle East. She is ranked as an international specialised franchising lawyer in many legal directories including Legal 500, Chambers and Partners and Who’s Who Legal.
