Frequently Asked Questions About Franchise Law

Do you have questions about franchise law? Before you consult franchise lawyers, read up on some important points in franchise law to boost your knowledge.

Must Franchisors Act to Support their Franchisees?

In theory, yes, franchise lawyers could prove that franchisors do have respective duties to their franchisee, but in practice, the descriptions of such responsibilities are usually too vague to enforce legally. Often, there’s a statement such as “the franchisor does not guarantee the effect of the franchisee”, even as there are marketing statements advertising the knowledge that the franchisor has, and how this is a great business opportunity. There is an obvious contradiction here. In the end, it must be agreed that a franchisor does not legally have a duty to support their franchisees, as they don’t guarantee a certain level of business performance from following their business system.

Must Franchisors Act Competently?

While it makes sense that hypothetically franchise lawyers could find franchisors guilty of acting incompetently – by poorly managing advertising campaigns or the franchise system – and thus violating a franchise agreement, it is incredibly rare for a franchisor to be found violating an agreement, and as far as courts are concerned, a violation must have taken place for them to take a case seriously from franchise lawyers. Interestingly, there are much more frequent cases of franchisees having violated agreements by doing something wrong or being incompetent.

Are Franchisors Allowed to Change their System Standards Throughout the Term of the Franchise? 

Even if you’re represented by good franchise lawyers, in most cases you will still be confronted with a court that allows changes to the responsibilities that franchisees owe to their franchisors during the term of the franchise contract.

If a Supplier the Franchisor Recommended Turns Out to be Neglectful, is the Franchisor Liable?

You will need to consult your franchise lawyers for the answer to this question, as the real answer is “it depends”. The language used and requirements mentioned in the franchise agreement will have a big impact. Furthermore, has the franchisor demanded that the franchisee use that specific supplier, and how integral is the supplied product or service? If both answers to these questions are in the affirmative, then there’s more chance that the franchisor could be deemed liable.

Does a Franchisee Have the Right to Sell or Transfer Their Business?

This question can be somewhat confusing. First, you need to get straight the fact that a franchisee does not own the whole business, but only the franchise which they operate. When a franchise agreement ends, the franchisor is not under any obligation to renew the agreement, unless renewal rights are specified in the agreement. While franchise lawyers may find some exceptions to this, thisis unusual. When it comes to selling or transferring a franchise, the agreement allows the franchisor “right to consent” over a sale or transfer. Other franchise agreements give the franchisor “right of first refusal”, whereby the franchisor has a chance to match a third party’s offer to buy. While you might be tempted to seek help from franchise lawyers when your franchisor refuses a sale, most courts will uphold the franchisor’s right to do so.