Is it Necessary that the FDD be Reviewed by an Attorney?

Is it Necessary that the FDD be Reviewed by an Attorney?

No, of course its not "necessary." But then too, do you really want to make what may be the biggest investment decision of your life without professional guidance? I always find it interesting that people will spend hundreds of thousands of dollars (and more) often depleting their personal savings, home equity, retirement plan funds, or obtain huge loans that are personally guaranteed, to buy a business format they really know nothing about. Meanhile, they are unwilling to spend a few thousand dollars to have the document describing their purchase, and relevant contracts, reviewed by an experienced franchise lawyer.  Although the FDD is required to be written in "plain english," its really not. The FDD and its exhibits, including the franchise agreement, are drafted ( by lawyers for the franchisor) under a specific format mandated by federal and state regulations. While filled with information regarding the franchisor and the franchise offered to be sold, that information is often not understood by the reader. Many clients (including those well educated or experienced in business) have told me that they did not understand much of its contents, including how the information presented would apply to their franchise purchase.

An experienced franchise attorney, who has reviewed numerous FDD's and is familiar with the format of the FDD and applicable franchise regulations, will in fact be able to describe for you, in "plain english," the duties and obligations of the franchisor to you and vice-versa. Critically, the attorney will explain to you the implications of many legal terms such as "cross-default," "liquidated damages," "noncompetiton," "protected territory,"  and "default/termination" among others.

Further, you will need guidance as to whether the franchise program as described makes sense for you. For example, can you find a site and execute a lease within the time period required?  Are you willing to be open the required hours? Does the initial training program seem adequate to reasonably allow you to be prepared to open and operate? Is your territory large enough to be profitable? Have you prepared a pro forma of revenue and expenses with an accountant? If the franchisor has made an Item 19 Financial Performance Representation, does it make sense? are the assumptions valid?

These are only some of the considerations. A good analysis by an experienced franchise attorney will be one of the best "investments" you will ever make.

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