The franchisor loved that she had a related business during the sales pitch. “That is exactly the kind of operator we are looking for,” they told her. Then we read the franchise non-compete clause. Her existing $50,000-per-year business would have been illegal to operate the moment she signed.

A small business owner came to us exploring expansion into franchising. She had found a national home restoration franchise that seemed like a natural fit. She already ran a small but profitable business in a related trade, generating roughly $50,000 per year. The franchisor’s sales team told her this was an asset. They encouraged her to leverage those existing relationships and skills. At Lopes Law LLC, we performed a complete franchise agreement review. What we found was a disconnect so severe between the sales pitch and the legal documents that it would have cost her everything she had built.

We flagged close to 200 comments across the FDD and franchise agreement. The territory was defined by zip codes. Both the client and her spouse were required to sign. The term was seven years. Here is what we found, and why it matters.

What Was at Stake? The Numbers Behind This Deal

This was not a million-dollar franchise investment. On paper, it looked like a manageable next step for a small business owner ready to grow. But the franchise agreement hid risks that went far beyond the franchise fee. The single most dangerous provision would have forced this client to shut down the business she had spent years building. And the franchisor knew about that business. They had praised it during the sales process.

That is the difference between a sales pitch and a legal document. The sales team says what you want to hear. The agreement says what actually happens.

This was the finding that changed everything. The franchise agreement contained a franchise non-compete clause that prohibited the franchisee from operating, owning, or having any interest in a “competing business” within 25 miles of any franchise location for a period of 2 years after the agreement ended. That language, on its own, is aggressive but not unusual. What made it dangerous was the definition of “competing business.”

The agreement defined competing businesses broadly enough to encompass the client’s existing company. Her small business provided services in the same general industry as the franchise. During the sales process, the franchisor had explicitly encouraged this connection. “Your existing clients will be great referrals for the franchise,” they told her. But under the legal terms of the agreement, those same services fell squarely within the non-compete definition.

Here is what that means in practice. The moment she signed the franchise agreement, her existing $50,000-per-year business would become a competing business under the contract. She would be contractually prohibited from operating it during the entire seven-year franchise term. If she left the franchise for any reason, voluntarily or not, she would be barred from operating it for an additional two years.

The franchisor’s sales team treated her existing business as a strength. The franchisor’s lawyers treated it as competition. Both cannot be true, and the franchise agreement is the document that governs the relationship.

The franchise agreement required minimum royalty payments that increased on a fixed schedule, regardless of the franchisee’s actual revenue. The minimums were set to escalate annually over the seven-year term. If the client’s revenue grew slowly (which is typical in the first two to three years of any franchise), the minimums could exceed what the business actually earned.

The penalty for falling below the minimum royalty threshold was severe. If the franchisee failed to meet the minimum for six consecutive months, the franchisor had three options: terminate the agreement, shrink the franchisee’s territory, or force a resale of the franchise. All three outcomes would devastate the franchisee’s investment.

Escalating minimums that are disconnected from actual performance create a ticking clock. The franchisee is not just building a business. She is racing against an artificial deadline set by the franchisor. If the business does not grow fast enough to keep pace with the scheduled increases, the franchisor gains leverage to take the territory back or force a sale at a discount.

The franchise agreement granted the franchisor the right to increase technology fees, dispatch fees, and advertising contributions without any cap, ceiling, or requirement for franchisee approval. The client would be required to pay whatever the franchisor decided to charge, whenever the franchisor decided to charge it.

The non-refundable launch fee was listed at $10,000, but the agreement noted it was “subject to change at the franchisor’s discretion.” That language means the franchisor could raise the launch fee between the time the client signed the FDD receipt and the time she signed the franchise agreement. She would have no recourse.

At Lopes Law LLC, we see discretionary fee authority as one of the most underappreciated risks in franchise agreements. It does not matter what the franchisor charges today if the agreement allows them to charge anything they want tomorrow. Over a seven-year term, uncapped fee increases can erode a franchisee’s margins to the point where the business is no longer viable.

The franchise agreement dedicated one and a half pages to governing national accounts. This provision allowed the franchisor to allocate large commercial accounts within the client’s designated territory to itself or to another franchisee. The client’s territory was defined by specific zip codes, but the national accounts provision effectively created a hole in that exclusivity.

The only protection the agreement offered was that the franchisee had to be “in good standing” to receive national account work in her territory. The problem: “in good standing” was never defined. The franchisor could interpret that phrase however it chose, and the franchisee would have no clear standard to point to if work was diverted.

For a home restoration franchise, national accounts (insurance companies, property management firms, commercial landlords) represent some of the most lucrative and recurring revenue. Losing those accounts to the franchisor or a neighboring franchisee could mean losing 20% to 40% of anticipated revenue in any given year. Learn more about franchise territory protections and your rights.

The franchise agreement gave the franchisor the right to inspect the franchisee’s operations at any time, without notice, and without any limit on how often those inspections could occur. While franchisors have a legitimate interest in maintaining brand standards, unlimited inspection rights with no notice requirements can become a tool for harassment or a pretext for termination.

Consider the practical implications. If a franchisor decides it wants a particular franchisee out of the system (perhaps because they want to take over that territory or resell it at a higher price), they can send inspectors repeatedly until they find a violation. No business can pass unlimited inspections. There will always be something out of compliance, no matter how well-run the operation.

The franchise term was seven years. That is shorter than the industry standard of ten years for most franchise systems. At first glance, a shorter term might seem favorable to the franchisee. But paired with the two-year post-termination non-compete, the effective restriction period is nine years: seven years during the franchise term plus two years after.

That combination creates a problem. A shorter term gives the franchisee less time to build equity in the business. Franchise businesses typically require three to four years to become profitable and another two to three years to build transferable value. With a seven-year term, the franchisee has a narrow window to recoup her investment. If the franchise is not renewed (and the agreement gave the franchisor broad discretion to deny renewal), the two-year non-compete would prevent her from using the skills and relationships she developed to earn a living in the same industry.

The math is straightforward. Seven years of franchise operation plus two years of non-compete restriction equals nine years of commitment. For context, the cost of an FDD review would have identified this issue in the first week of analysis.

The franchise agreement included a liquidated damages clause requiring the franchisee to pay 24 months of projected royalties if the agreement was terminated by the franchisor. On its own, 24-month liquidated damages provisions are not uncommon. The problem was the list of termination triggers.

The agreement defined default broadly enough to include minor regulatory violations, missed reporting deadlines, and subjective quality standards. The cure opportunity was minimal. For most violations, the franchisee had 15 days to cure, but some violations (described vaguely as “material breaches”) had no cure period at all. The franchisor could terminate immediately and demand 24 months of damages.

Combine this with the escalating minimum royalties and the short term length, and the picture becomes clear. If the franchisor terminates in Year 5, the franchisee owes 24 months of damages calculated at the Year 5 minimum royalty rate, which is significantly higher than the Year 1 rate. The exit cost escalates every year the franchisee stays in the system.

This is the finding that tied everything together. The client’s existing business generating $50,000 per year was not just a source of supplemental income. It was her financial safety net. It helped her qualify for financing. It would keep her household stable during the first 12 to 18 months while the franchise ramped up. And if the franchise failed, it was her fallback.

The franchisor knew all of this. During the sales process, they discussed how her existing business would bridge the gap. They understood that she was not independently wealthy. She was a working business owner who needed the existing income to survive the franchise launch period.

Yet the franchise agreement would have destroyed that safety net the moment she signed. The non-compete clause would have required her to stop operating her existing business. She would have been entirely dependent on the franchise from Day 1, with no fallback and no alternative revenue source while the franchise was still unprofitable.

If the franchise failed or the franchisor terminated the agreement, she would lose both businesses: the franchise she invested in and the existing business she built over years. She would then face two years of non-compete restriction, during which she could not operate either business or start a new one in the same industry.

Understanding what a franchise agreement really says is the difference between calculated risk and catastrophic exposure. Learn more about the cost of hiring a franchise lawyer and how it compares to what is at stake.

The Bigger Picture: Close to 200 Comments, One Clear Conclusion

The eight findings above were the most significant, but they were not the only issues. Our review identified close to 200 total comments across the FDD and franchise agreement. These included ambiguous language around territory boundaries, inconsistent fee schedules between the FDD and the agreement, transfer restrictions that would make selling the franchise nearly impossible, and indemnification provisions that shifted virtually all legal risk to the franchisee.

At Lopes Law LLC, Anthony Lopes, Esq. reviews franchise agreements for buyers across all 50 states. Every agreement has issues. That is the nature of franchise law: the franchisor’s lawyers draft the document, and the franchisee’s lawyer identifies what needs to change. But some agreements have issues that are so fundamental, so structurally embedded, that the franchisee needs to know the full picture before committing.

This was one of those agreements. The non-compete clause alone could have cost this client her existing livelihood. The escalating minimums, discretionary fees, national account carve-outs, and aggressive liquidated damages compounded the risk. Every one of these provisions was legal. Every one was enforceable. And every one was hidden behind a sales process that told the client exactly what she wanted to hear.

Before you sign any franchise agreement, get it reviewed. The cost of a review is a fraction of what you stand to lose. Reach out, we are friendly. Call now for a free consultation at (267) 777-9117.

Last updated: March 5, 2026