Franchise Foundations: Understanding the Legal Aspects of Franchise Law in Florida

Combining big firm experience with boutique firm service, Rodriguez-Albizu Law offers expertise in South Florida business law. The team provides affordable counsel to small and mid-size companies and organizations that do not have the resources for in-house attorneys.

Rodriguez-Albizu Law’s many practice areas include franchise law.

“Purchasing a franchise can be a significant investment, and it is important to carefully consider all aspects of the decision,” the firm’s website states. “One important factor to consider is whether to hire a law firm to assist with the process. Franchise attorneys are familiar with the various legal issues that may arise in the process of purchasing a franchise, and they can help you navigate these issues to ensure that your interests are protected.”

The growing popularity of franchises in Florida highlights the importance of understanding the legal foundation and framework of such businesses. In this blog post, budding franchisees and franchisors will learn everything they need to know as they move forward in their endeavors.

Does Florida have specific franchise laws?

It is a common misconception that Florida has strict registration rules when it comes to franchises. Actually, the state does not have any laws on the books of that nature. Instead, Florida relies on the Federal Trade Commission Franchise Rule.

“The Franchise Rule gives prospective purchasers of franchises the material information they need in order to weigh the risks and benefits of such an investment,” according to the FTC. “The Rule requires franchisors to provide all potential franchisees with a disclosure document containing 23 specific items of information about the offered franchise, its officers, and other franchisees.”

The 23 specific items of information about the offered franchise are:

• Franchisor and any parents, predecessors and affiliates
• Business experience
• Litigation
• Bankruptcy
• Initial fees
• Other fees
• Estimated initial investment
• Restrictions on sources of products and services
• Franchisee’s obligations
• Financing
• Franchisor’s assistance, advertising, computer systems and training
• Territory
• Trademarks
• Patents, copyrights and proprietary information
• Obligation to participate in the actual operation of the franchise business
• Restrictions on what the franchisee can sell
• Renewal, termination, transfer and dispute resolution
• Public figures
• Financial performance representations
• Outlets and franchisee information
• Financial statements
• Contracts
• Receipts

A key requirement of the Franchise Rule is the Franchise Disclosure Document, or FDD.

“The disclosure document begins with a cover page that provides prospective franchisees with information about the franchise being offered for sale,” the Compliance Guide states. “It also provides prospective franchisees with additional sources of information, including a reference to the FTC’s Consumer’s Guide to Buying a Franchise (“Guide”). When preparing the cover page, franchisors must follow the specific order and form set out in the Rule. The title of the cover page is “FRANCHISE DISCLOSURE DOCUMENT,” and it must appear in both capital letters and boldface type. The cover page must next state the franchisor’s name, type of business organization, principal business address, telephone number, and, if applicable, the franchisor’s email address and the address of the primary Internet home page of the system being offered for sale. The cover page must also include a sample of the primary business trademark that franchisees will use in the business and provide a brief description of the franchised business.”

Key considerations for franchisees in Florida

The importance of the FDD cannot be overstated as it plays a primary role in protecting franchisees. Franchisees should review the FDD carefully with an attorney before signing any type of agreement.

“Love at first sight may (or may not) be a real thing, but when it comes to investing your money, it’s unwise to fall for a franchise without first subjecting it to tough-minded scrutiny,” reads an FTC business blog titled “Franchise Fundamentals: Taking a deep dive into the Franchise Disclosure Document.” “You must receive the Franchise Disclosure Document at least 14 days before you’re asked to sign any contract or pay any money to the franchisor or one of its affiliates. In fact, you have the right to the FDD once the franchisor has received your application and agrees to consider it. So speak up if you don’t receive it and ask questions – lots of them – as you review the FDD and any attached documents.”

Much like the FDD, the importance of the franchise agreement cannot be overstated as it outlines the terms and conditions of the transaction including fees, territory and renewal, termination, transfer and dispute resolution. Clear and concise language in the franchise agreement is a must to avoid future disputes. It is advisable to run the franchise agreement by an attorney for review and possible negotiation. In fact, it is advisable to seek legal counsel throughout the entire franchising process to mitigate risks and ensure franchisees are complying with general Florida business regulations (e.g., licenses and permits).

Key considerations for franchisors in Florida

Franchisors must do their due diligence as well in complying not only with the Franchise Rule and the FDD but also with the state’s Sale of Business Opportunities Act exemption process.

“Sellers of business franchises are no longer required to file registration documents with the Florida Department of Agriculture and Consumer Services (FDACS),” according to the agency. “The Franchise Exemption filing remains in place. Section 559.802, Florida Statutes, states that anyone offering a “franchise” in Florida is exempt from the Sale of Business Opportunities Act provided they meet the requirements of the law and annually file a Franchise Exemption application before offering for sale or selling a franchise to be located in this state or to a resident of this state.”

Conclusion

In summary, the takeaways for franchisees and franchisors in Florida are:

• The importance of understanding the legal foundation and framework of franchises
• The importance of understanding the Franchise Rule
• Knowing everything there is about the FDD
• Using clear and concise language in the franchise agreement
• Becoming familiar with Florida’s Sale of Business Opportunities Act exemption process
• Consulting an attorney during the complicated journey of becoming a franchisee or a franchisor.

To reiterate, be sure to employ a qualified lawyer who can help unravel the complexities of franchise law. Contact Rodriguez-Albizu Law at 561-953-9630 in Palm Beach County, 772-362-3172 on the Treasure Coast or via email for a consultation.