17th Feb 2015

When people consider a franchise investment for their business, they are typically considering benefits and drawbacks on a purely financial and business-forward scale.  In other words, they consider the start-up costs, the geographic and franchise benefits, and the possibilities of failure.  Based on their analyses and calculations, they decide whether to enter into the franchise or not.

When profitable, most franchise agreements are positive experiences and the constraints of the franchise agreement are rarely problematic.  The worth of a consultant’s advice when setting up a franchise can be measured in how well the investor understands the impact of the franchise terms – most notably the assignment of venue.

Venue and Franchise Agreements

Franchise agreements are, of course, designed to be beneficial to the national company.  Most will include an assignment of venue stipulation that identifies a specific legal location where all lawsuits or arbitrations will be settled.  This is almost certainly not the same location as the franchisee.

Corporations want to handle legal problems in their court of choice both for consistency and in order to have the most beneficial interpretation of the franchise agreement possible.  While neither of those considerations necessarily prevents a franchisee from gaining a positive outcome, the costs involved are often an impediment: Staging a legal action a thousand miles away from their ”home base”is often more than they can handle, especially if the failure of their franchise is the reason for the legal action in the first place.

A consultant specializing in franchise agreements will likely not be able to persuade the parent company to alter or exclude the venue assignment clause, but they can advise the franchisee as to the potential impact of such clauses.

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