When a client brought us a franchise agreement for a national med spa franchise, we expected to find the usual issues. What we found instead was one of the most aggressive and one-sided agreements we have ever reviewed.

The client was a real estate investor from the West Coast, ready to invest $1 million into this franchise: $200,000 in cash and $800,000 through an SBA loan. At Lopes Law LLC, we performed a complete franchise agreement review. The result: approximately 250 comments, annotations, and 15+ formal negotiation recommendations.

Here is what we found, and what we advised.

What Was at Stake? The Numbers Behind This Deal

Before diving into the specific issues, it helps to understand the financial gravity of this transaction. The client’s total investment was $1 million, split between $200,000 in cash equity and $800,000 in SBA financing. This is not a small franchise purchase. This is a life-changing financial commitment secured by a federal loan that carries personal liability regardless of the LLC structure.

When you are investing at this level, every clause in the franchise agreement matters. A single overlooked provision can result in hundreds of thousands of dollars in unexpected liability. That is exactly what we found.

The franchise agreement required the client’s wife to sign as a personal guarantor, despite the fact that the franchise would be owned and operated through an LLC. The entire purpose of forming an LLC is to create a legal barrier between business liabilities and personal assets, including marital assets.

By requiring a spousal guarantee, this franchisor was effectively piercing the corporate veil before there was even a dispute. If the franchise failed, the franchisor could pursue the client’s personal assets, the wife’s personal assets, and jointly held marital property. The LLC would provide zero protection.

Most franchise systems collect royalties monthly. This agreement required weekly royalty payments at 6% of gross revenue. But the real problem was the escalating fixed minimum royalties.

The franchise agreement required minimum royalty payments starting at $78,000 per year and escalating to $195,000 per year by the end of the term, regardless of actual revenue. If the business had a slow season, an equipment failure, or a staffing crisis, those minimums were still owed in full.

At Lopes Law LLC, we see weekly payment structures and escalating minimums as hallmarks of private equity-backed franchise systems focused on maximizing short-term cash extraction. This is often associated with what the industry calls a “pump and dump” strategy: acquire a franchise brand, extract maximum royalties, and sell the system before franchisees realize the economics do not work.

The franchise agreement included a liquidated damages clause requiring the franchisee to pay damages equal to the average royalties for the entire remaining term of the agreement if terminated early by the franchisor.

Run the math. If the franchisor terminated the agreement in Year 3 of a 10-year term, the franchisee would owe 7 years of projected royalties. At the minimum royalty rates specified in the agreement, that totals approximately $1.28 million in liquidated damages, on top of the $1 million already invested in the buildout.

That means the client could lose $2.28 million: the initial investment plus the liquidated damages. For context, many courts will scrutinize liquidated damages clauses this aggressive and may find them to be unenforceable penalties. But litigation to challenge them costs time and money, and the franchisor knows that.

The client asked the franchisor to provide the operations manual before signing. The franchisor refused. This is a significant red flag for any franchise investment, but especially for a med spa franchise where the buildout specifications, equipment requirements, and operational protocols directly determine the total cost.

The client was being asked to commit to a $1 million buildout without knowing the franchisor’s specifications for that buildout. Think of it this way: you are signing a construction contract without seeing the blueprints.

Under federal franchise law (the FTC Franchise Rule), franchisors are required to provide certain disclosures in the Franchise Disclosure Document, but the operations manual is not one of them. However, a refusal to share it before signing is a red flag that the manual may contain requirements that would change the franchisee’s investment calculation.

The post-termination non-compete clause prohibited the client from operating any competing business within 25 miles of any franchise location for 24 months after the agreement ended. That alone is aggressive by industry standards. But this agreement went further: the non-compete extended to the client’s family members.

This means the client’s spouse, children, or siblings could be prohibited from opening a competing business within that radius, even if they had no involvement in the franchise. Courts in many states view non-competes that extend to non-parties as overreaching, but challenging them requires litigation that costs time and money.

The franchise agreement included a choice-of-law clause requiring all disputes to be governed by the law of the franchisor’s home state, not the state where the client would be operating. This matters because many states have franchise relationship laws that provide specific protections for franchisees, including requirements for good cause before termination, mandatory cure periods, and restrictions on encroachment.

By forcing disputes into the franchisor’s home state, this clause effectively stripped the client of those protections. At Lopes Law LLC, we review franchise agreements for clients in all 50 states, and choice-of-law clauses are one of the most impactful provisions we encounter. Losing your home state’s franchise protections can be the difference between having legal recourse and having none.

The franchisor pressured the client to sign the franchise agreement before the franchisor’s new annual FDD filing took effect. The stated reason was that waiting would delay the process. The reality was different.

Franchise Disclosure Documents are updated annually, and any material changes to fees, litigation history, financial performance, or franchisee turnover must be reflected in the new filing. When a franchisor pressures a prospect to sign before the new FDD is filed, it often means the new FDD contains information the franchisor would rather the prospect not see before committing.

Additionally, in franchise registration states, the registration process takes 60 or more days. The artificial urgency was just that: artificial. There was no legitimate reason to rush a $1 million decision.

The franchise agreement would have committed the client to the franchise system before the client had identified a location, secured a lease, or received a site approval from the franchisor. In a med spa franchise where location is critical to revenue, this is a serious problem.

If the client signed the agreement and then could not find an approved site, or if the franchisor rejected every proposed location, the client would be bound to a franchise agreement with no way to open. The agreement did not include any provision for termination or fee refund if a suitable site could not be found within a reasonable timeframe.

The Final Count: 250 Comments and 15+ Formal Recommendations

After a thorough line-by-line franchise agreement review, we returned to the client with approximately 250 comments and annotations across the entire agreement, plus 15 formal negotiation recommendations on the most critical issues.

Not every comment required a negotiation. Many were explanatory notes helping the client understand what each provision actually meant in practice. But over a dozen provisions were serious enough to warrant formal pushback before signing.

This is why a franchise agreement review matters. The issues described above are not hypothetical. They were all present in a single agreement from a national franchise brand that was actively selling locations across the country. If you are considering hiring a franchise lawyer, this case study illustrates exactly what that investment protects you from.

What Happened Next?

We cannot disclose the outcome of the negotiation. But we can tell you this: the client made an informed decision. Every issue was identified, quantified, and presented with specific recommendations before anything was signed.

That is the value of a franchise agreement review. The cost of our review was a fraction of the $1 million the client was about to invest. Whether the client ultimately moved forward or walked away, the decision was made with full knowledge of the risks involved.

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 4, 2026