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8 RED FLAGS IN A FRANCHISE DEAL FOR FRANCHISORS



ACCORDING TO ATTORNEY RICHARD ROSEN, A LAWYER WHO HEADS A NEW YORK CITY BASED FIRM THAT HAS WORKED WITH HUNDREDS OF

ENTREPRENEURS ON FRANCHISE AGREEMENTS, AND IS THE CURRENT CHAIRMAN OF THE NEW YORK STATE FRANCHISE BAR ASSOCIATION, THE FOLLOWING RED FLAGS CAN OFTEN SPELL DOOM FOR FRANCHISE OWNERS, EITHER SOONER OR LATER, AND THEY ARE TOO OFTEN OVERLOOKED IN THE PROCESS OF SIGNING A FRANCHISE AGREEMENT.


  • NOT HAVING DEFINED TERRITORIES FOR FRANCHISEES

  • FRANCHSIE AGREEMENT HAS A LENGTHY NON-COMPETE PERIOD FOR FORMER FRANCHISE OWNERS

  • THE FRANCHISE IS INVOLVED IN LOTS OF LITIGATION INVOLVING FRANCHISEES

  • FRANCHISE RENEWAL RIGHTS THAT ARE NOT PERPETUAL

  • FRANCHISOR'S RIGHT TO BUY YOUR FRANCHISE AT A "DEPRECIATED VALUE"

  • EQUAL OR HIGHER NUMBER OF FRANCHISE UNITS CLOSING COMPARED TO NEW FRANCHISE UNITS OPENING

  • FRANCHISE AGREEMENT WITH A SHORT STATUTE OF LIMITATIONS FOR CLAIMS THAT CAN BE BROUGHT AGAINST THE FRANCHISE BY ITS FRANCHISEES

  • A LIMITATION ON DAMAGES FROM FRANCHISEE DISPUTES THAT ARE OBVIOUSLY WELL BELOW THE INITIAL INVESTMENT FEE, STARTUP COSTS, AND RELATED INITIAL INVESTMENTS MADE BY A FRANCHISEE

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