How to review a franchise agreement

A franchise agreement licenses a franchisee to run a business under the franchisor's brand and system, in return for fees. In the US the agreement comes with a Franchise Disclosure Document (FDD) under the FTC Franchise Rule, and some states add registration and relationship laws. This guide covers the clauses to check in the agreement itself, whether you act for the franchisee or the franchisor, and how to review it in Word. For a practice-level view, see AI for franchise lawyers.

Last checked: 17 October 2026. The law changes; check the current position before relying on this page.

The disclosure framework

• The FTC Franchise Rule. 16 CFR Part 436 requires a franchisor to give a prospective franchisee its FDD at least 14 calendar days before the prospect signs a binding agreement or pays any consideration. The FDD has 23 required items, including fees, litigation history, initial investment, restrictions on sources of products and the franchise agreement itself.
• Financial performance representations. Item 19 is optional. If the franchisor makes earnings claims, they must have a reasonable basis and appear in Item 19.
• What counts as a franchise. Under the Rule, an arrangement is a franchise if the franchisee uses the franchisor's trademark, the franchisor exerts significant control or gives significant assistance, and the franchisee makes a required payment. Labels do not matter.
• State laws. A number of states require franchisors to register or file their FDD before offering franchises there, and some states also restrict termination and non-renewal. Check the states where the franchisee lives and where the outlet will operate.
• Compare the agreement to the FDD. The agreement you are reviewing should match the form attached to the FDD. Note every change.

Franchise agreement clause checklist

• Fees. Initial fee, royalty, marketing fund contributions, technology fees, transfer and renewal fees. Check whether the franchisor can add or raise fees during the term.
• Territory. Is there a protected territory? Check carve-outs for online sales, non-traditional sites (airports, campuses) and national accounts.
• Development obligations. Opening deadlines and, for multi-unit deals, a development schedule with consequences for missing it.
• Operations manual and controls. The manual can usually change over time. Check how much change the franchisor can impose and who pays for required upgrades or remodels.
• Supply restrictions. Approved suppliers, required purchases, and whether the franchisor earns rebates on them.
• Term and renewal. Length of the initial term, conditions for renewal, and whether renewal requires signing the then-current form of agreement.
• Transfer. Franchisor consent to a sale of the business, transfer fees, and the franchisor's right of first refusal.
• Default and termination. Grounds for termination, notice and cure periods, and cross-default across multiple units. Some state relationship laws require good cause or notice.
• Post-term obligations. De-identification, the franchisor's option to buy assets, and post-term non-competes. Non-compete enforceability depends on state law.
• Guaranties. Personal guaranties from owners and spouses are common; check their scope.
• Dispute resolution. Arbitration, venue, jury waivers and limits on class actions.

A franchise agreement review workflow in Word

LexDraft is a Word add-in from Microsoft AppSource. It opens as a side panel in Word 365 (Windows and Mac), Word 2021 and Word on the web, so the agreement never leaves the tool you already draft in.

1. Open the agreement in Word and open LexDraft in the side panel.
2. Pick the governing law. Select the state named in the governing law clause so LexDraft looks for state-specific red flags.
3. Run the review. LexDraft has four built-in playbooks (NDA, SaaS MSA, DPA and services agreement) and no dedicated franchise agreement playbook, so this runs as a general review against the governing law you chose. Use the checklist on this page to direct your own read.
4. Triage by severity. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
5. Run the quick checks. The defined-term and cross-reference checks are rule-based and run without AI.
6. Accept or reject each redline. Accepted changes land as native Word tracked changes.
7. Verify and sign off. You check every output before it goes to the client or the other side.

What LexDraft does not do

LexDraft does not give legal advice, prepare an FDD or decide whether an arrangement is a franchise or which state registration laws apply. Nothing changes in your document until you accept a redline.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. Spotted something out of date? Email support@lexdraft.ai and we will fix it.