Most of my recent columns have been directed at prospective franchisees, who want to “buy into” a brand and business system.
Here's some advice for prospective franchisors, who want to start and build their own system as opposed to buying into someone else's.
Start-up franchisors make a lot of mistakes, but one of them, believe it or not, is listening to their lawyers … a little too much. Now that I have the attention of all the lawyers who practise in this area, and a few of their clients, let me explain.
Lawyers are trained to anticipate problems that might arise during the life of a contract, such as a franchise agreement. It's what we're supposed to do. We draft for these possibilities to protect our clients, who are always the franchisors. Franchisors pay their lawyers boatloads of money to be “on top of the law,” and to draft franchise and related agreements so they are legally bulletproof, in the sense that if there's a legal problem, it's almost always anticipated in the franchise agreement and resolved in favour of the franchisor.
These days, when I review franchise agreements on behalf of franchisees, I'm amazed at how long and complicated they are becoming. A 50- to 60-page franchise agreement isn't unusual. With subleases, trademark licence agreements, general security agreements, guarantees, and other agreements that come as part of the package, 100 pages isn't out of the ordinary. And that doesn't include a disclosure document that the law requires be provided to prospective franchisees in Ontario, Alberta and PEI.
In fairness, the length and complexity of these agreements is largely because my colleagues are doing their legal jobs; they're protecting the interests of their franchisor clients by drafting tight, complete, iron clad and bullet-proof franchise agreements. No lawyer wants to be sued for not putting in the essential clause that would have won the case and saved the day.
In my experience, long and complex franchise agreements are even more common across the 49th parallel, and I see these U.S. agreements all the time when an American franchisor is expanding into Canada and awarding franchisees to Canadians using its U.S. contract, which may or may not have been modified to reflect the fact Canada is another country.
But what happens when a start-up franchisor with one or two corporate outlets wants to expand the brand and the business system through franchising? What should the franchise agreement contain and what shouldn't it contain? Should it have the “kitchen sink” so the franchisor is contractually “protected” from everything that could go wrong?
I suppose, but I can assure you, the start-up franchisor is going to discover many prospective franchisees will be intimidated by a 60-page franchise agreement (not to mention the 40 pages of ancillary contracts) and walk away, figuring the legal overkill isn't justified because the new franchisor isn't Tim Hortons.
Well, I have a Tim Hortons franchise agreement. Its only 26 pages long.
I'd say Tim's and other established franchisors have recognized that you don't always need painfully long, over complicated and wordy franchise agreements filled with legal jargon to adequately protect your interests. Some day-to-day operational matters that franchisors put in their agreements unnecessarily add to the agreement's length and can make it more intimidating to prospects. Operational matters belong in the franchisor's manual, not in the agreement.
Long, complicated and wordy franchise agreements filled with legal jargon may well help a franchisor in court when there's a dispute with a franchisee, but if the franchisor has no franchisees because he can't sell the agreement in the market, all the legal protection in the world is pointless. These agreements don't take into account the problems with marketability. In other words, if you're a start-up without much of a track record, a long, complicated agreement will scare the willies out of the prospects you hope to sign up.
