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December 2010
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CLIENT IN THE NEWS - BRUXIE

  

Bruxie, the operator of a recently opened waffle shop in Old Towne Orange, California, was featured in the Los Angeles Times Food Section on November 25, 2010. Bruxie is the work of partners Dean Simon, Philippe Caupain and Kelly Mullarney, all restaurant veterans. The article describes their waffles as "crisp yet delicate, a honeycomb of airy pockets that strikes just the right balance: pliable enough to be folded over a dozen sweet and savory fillings, sturdy enough to support a serious sandwich". Click here to see the full article. 

FRANCHISOR 101:   PAY ATTENTION TO THE DETAILS   

 

Details, details, details. There are lots of details in franchising, starting with those in your franchise agreements, and they can make your eyes glaze over. But they can keep you out of trouble, too, as a recent court case involving three agreements I myself wrote shows.

The plaintiff in the case wanted to get out from under an area development agreement, and the question was whether the plaintiff could press its case in Hawaii, where it did business, or in Texas, where the franchisor headquartered.

Now, the "forum selection" clause in any contract typically specifies that all disputes between the parties will be heard in a court handy to one of the parties to the agreement - in franchising, usually the franchisor. But not all forum selection clauses are the same, and the difference is a matter of detail.

In this particular instance, we specified in the area development agreement itself - and in a release and a personal guarantee signed by the area developer - that any dispute go to trial where the franchisor and former client, Red Mango Franchising Co., headquartered, which, at the time of the dispute, was in Texas.

The plaintiff, RM Yogurt Hawaii LLC, argued two points in favor of making Hawaii the venue - first, that travelling to Texas to hash things out would constitute a financial hardship, in effect limiting the company's right to have its day in court, and second, that the dispute involved alleged breaches of Hawaii franchise law, so Hawaii ought to get the nod.

No deal, said the court. All three agreements specified that "any action brought by either party against the other in any court, whether federal or state, shall be brought within the state and federal judicial district in which [Red Mango] has its principal place of business..."

All three agreements, in other words, made Texas the mandatory venue. What's more, other language in the agreements required that the plaintiff waive "all questions of personal jurisdiction or venue for purposes of carrying out this provision." (For the full opinion, click here).

To be sure, not every contract should make the choice of venue mandatory; indeed, under certain circumstances, it can make sense to write "permissive" language into the choice of venue clause. But circumstances change, so it's important to review the choice on a regular basis so that, in the event that you get into a pushing match with a franchisee, you don't let the details trip you up.

FRANCHISEE 101 - HOW TO AVOID MISSTEPS IN NEGOTIATING A LEASE - PART II

 

It takes work to negotiate a lease for a franchise operation, and most landlords come to the negotiating table far more savvy about the ins and outs of leasing than the typical startup franchisee.

But a bad lease can spell disaster, so it pays to know the pitfalls before you start dealing with a landlord. Watch out in particular for clauses governing base and percentage rents, records and audits, and financial statements. Here's how they work:

Base and percentage rents: The lease agreement your landlord hands you will specify, in more or less plain English, what your base rent will be, when you must start paying it, and when each monthly payment is due, along with any increases due in the future.

What may not be plain is the language governing percentage rents. Some landlords want a percentage rent equal to 10 percent of "all net sales in excess" of a specific "annual sales base" as defined in the agreement. Some, on the other hand, may base the percentage rent on gross sales. Some include internet sales fulfilled locally. Some may require payment of percentage rents every month, some every quarter.

What works for you depends on your circumstances, but before you sign any lease agreement, understand what these terms mean, calculate the impact and timing of any increases in rent on your income forecasts and, if necessary, negotiate for terms you can accept.

Records and audits: As an opening gambit, your landlord may also want you to submit monthly, weekly or even daily statements of your gross sales. Here again, what works for you may or may not reflect what your landlord wants, and in any case, an opening gambit is an opening gambit.  Remember that your landlord wants you to succeed, but know what's doable for you and step carefully. Also, try to coordinate the landlord's requirements with your franchisor's requirements to avoid duplicative but different reporting.

Financial statements: Similarly, your landlord may want to see financial statements - meaning a balance sheet and statement of income and expense - on a regular basis. The question is: What's "regular"? It's not unreasonable for a landlord to want annual statements from any startup business; for that that matter, many a landlord will insist that your statement be prepared by a certified public accountant or in any event by an accountant satisfactory to the landlord. Again, try to coordinate the landlord's requirements with your franchisor's requirements to avoid duplicative but different reporting.

Like many other parts of any lease agreement, however, such matters are negotiable. Just make sure you know what your own bottom line is, and get good legal and accounting advice before you sign.

BARRY KURTZ IN THE LOS ANGELES BUSINESS JOURNAL

Barry Kurtz comments on the success of client TGA-Premier Junior Golf in the November 29, 2010 edition of the Los Angeles Business Journal. Click here to see the full article..

NEW APPOINTMENT - SOUTHWESTERN LAW SCHOOL ALUMNI ASSOCIATION

Barry Kurtz was recently appointed to the Board of Directors of the Southwestern Law School Alumni Association.
This communication published by Barry Kurtz, APC is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation.

Copyright Barry Kurtz, A Professional Corporation 2010 
All Rights Reserved.

 
In This Issue
Client in the News - Bruxie
Franchisor 101: Pay Attention to the Details
Franchisee 101: How to Avoid Missteps in Negotiating a Lease - Part II
Barry Kurtz in the Los Angeles Business Journal
Prior
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Barry Kurtz
Barry Kurtz is a prolific writer on the subject of franchise law. From due diligence to franchise appraisal, his articles are a valuable resource to any franchisee and franchisor.  He has been named a Certified Specialist in Franchise and Distribution Law by the State Bar of California Board of Legal Specialization.



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