Franchise Agreement Review: An In-House Counsel Checklist

A franchise agreement review identifies the legal, financial, and operating obligations that will govern a franchise relationship before the company signs, renews, transfers, or enforces the agreement. For in-house counsel, one of the biggest challenges is that the franchise agreement is only part of what needs review. Important obligations may also appear in the Franchise Disclosure Document (FDD), state addenda, personal guarantees, and an operations manual or other standards incorporated by reference.

Start with the transaction: a new purchase needs pre-signing diligence; a renewal needs a comparison with the expiring agreement; a transfer needs consent and guarantee-release checks; and a default needs a review of the facts, notices, and applicable law.

Maury Bricks, General Counsel and Secretary at ARKO Corp and GPM Investments, described a general contract-review moment on CZ and Friends, GC AI's podcast for in-house legal leaders:

I love how I type in like 'please redline this document' and then press easy prompt and it's like, did you mean you wanted to know these 40 things? And I'm like, yes, that's exactly what I wanted to do.

Bricks was describing contract review generally.

His point is straightforward: “redline this” is too broad to define a complete review.

The legal team has to specify what the AI should check. For a franchise agreement, that means turning recurring issues such as fees, territory, transfer rights, renewal, termination, and state-law restrictions into a consistent review standard.

GC AI is an enterprise-grade legal AI platform for in-house teams. It supports contract review, cited research, and proposed edits in Word. Customers include Columbia Sportswear, which operates a network of retail stores.

The GC AI features used in this review have distinct jobs:

• Playbooks apply the team's approved contract positions.
• Exact Quote shows verbatim source language for verification.
• Research runs coordinated legal research and returns cited analysis.
• GC AI for Word supports review and redlining inside Microsoft Word.

What Makes Franchise Agreement Review Different

A thorough franchise agreement review should not stop with a clause-by-clause read of the agreement itself. Three issues make franchise review different from a routine one-document review.

1. The related documents: Important obligations can appear outside the franchise agreement, including in the Franchise Disclosure Document (FDD) or in documents the agreement incorporates or cross-references. The review packet below brings those sources together so counsel can see which document controls each obligation.
2. Applicable state law: The FTC's Franchise Rule governs federal disclosure, while state franchise relationship laws can limit or override contract terms on issues such as termination, non-renewal, transfer, and post-term restrictions.
3. The work repeats: Franchisors and multi-unit operators may review the same agreement family across many units, brands, renewals, and transfers. A consistent review standard becomes more valuable when the same issues recur.

The review therefore has to connect the related documents, the applicable law, and the team's own approved positions.

Start With the Full Review Packet

Before running the nine-clause checklist below, gather the documents that can affect the legal and business conclusions from the review:

• the current franchise agreement and amendments;
• the current Franchise Disclosure Document (FDD) and applicable state addenda;
• personal guarantees;
• the current operations manual or other standards incorporated by reference, to the extent available to the reviewing team;
• related development, purchase, lease, or side agreements when they affect the relationship; and
• for a renewal, the expiring agreement and the proposed then-current form.

For anything incorporated by reference, identify which version controls, who can amend it, what notice is required, whether the agreement limits the amendment power, and whether a change can create new cost or operating obligations.

The operations manual is especially important because the agreement may allow the franchisor to change operating standards between contract renewals. A provision that looks stable in the agreement can therefore lead to different obligations after the incorporated standards change.

The FDD and the Franchise Agreement Answer Different Questions

The FDD is the pre-sale disclosure the FTC requires. The franchise agreement is the binding contract that governs the relationship, subject to applicable law. They are usually reviewed together, but they serve different purposes.

16 CFR Part 436 requires 23 disclosure Items, and the franchisor generally must furnish the current FDD at least 14 calendar days before the prospective franchisee signs a binding agreement or makes a payment in connection with the proposed sale.

Three FDD Items are particularly useful for agreement review:

• Item 17 cross-references relationship provisions such as term, renewal, termination, transfer, non-competition, modification, dispute resolution, forum, and choice of law to the relevant agreement sections.
• Item 19 contains any financial performance representations the franchisor chooses to make. Compare the business assumptions being relied on with what Item 19 and its supporting disclosures say.
• Item 3 discloses specified litigation. Review it for diligence context without assuming that a disclosed dispute predicts how a future renewal, transfer, or termination will be handled.

Use the FDD to identify issues and cross-references, then read the agreement and incorporated documents themselves. Any mismatch, changed assumption, or missing document becomes a diligence or negotiation question.

The 9-Clause Franchise Agreement Review Checklist

The checklist below covers nine contract areas that directly affect economics, control, transfer, and exit. Item 17 above overlaps with several of these issues, but the agreement itself still needs a complete review.

1. Fees and royalties: The initial fee is only one part of the economics. Extract the royalty formula, advertising or brand-fund contributions, technology charges, minimums, required purchases, increase rights, and any caps into one table. Then verify what counts as “gross sales,” how delivery or online sales are treated, and what notice or approval rights apply to fee changes.
2. Territory and exclusivity: Read the carve-outs before valuing an exclusivity grant. A protected radius may exclude online orders, catering, delivery, nontraditional locations, or other channels. Compare every carve-out with the revenue channels the business expects to use, then have counsel verify the contract language and business effect.
3. Term and renewal: Check notice windows, performance conditions, required upgrades, releases, fees, and whether renewal requires signing the then-current form. For an existing unit, compare the expiring agreement with the proposed renewal form and identify what changed before deciding what belongs on the negotiation list.
4. Transfer and assignment: The assignment provision can combine a consent standard, transfer fee, training requirements, financial qualifications, a release, personal-guarantee issues, and a right of first refusal. Put those requirements on one closing timeline so the business and lender know whether the consent or right-of-first-refusal periods affect the expected closing date.
5. Termination and cure: The termination clause identifies defaults, cure periods, and circumstances that permit faster action. State law may change the result. Under California Business and Professions Code section 20020, subject to the rest of the chapter and the exceptions in section 20021, a franchisor generally needs good cause to terminate before the end of the term, and ordinary curable noncompliance requires at least 60 days' advance notice and a reasonable opportunity to cure of at least 60 days. That is why reading the clause and researching applicable franchise law are separate steps.
6. Post-term non-compete: A non-compete may operate during the relationship, after termination, or both. Extract the restricted activity, geography, duration, triggering events, and any related non-solicitation language, then check enforceability under the governing and applicable local law before treating the contract text as the final answer.
7. Indemnification and personal guarantees: Check the indemnification for who indemnifies whom, the scope of the obligation, the duty to defend, exclusions, and any cap. Check whether it reaches claims arising from franchisor-required systems, products, or vendors. Review the personal guarantee separately, including its duration, release mechanics, and what happens after a transfer or sale.
8. Trademarks and the license grant: A franchise relationship depends on a trademark license grant and the operating standards that protect the brand. Check what the license covers, who can change brand standards, what happens to inventory on exit, and what the agreement requires to remove signage, branding, and other identifying features after the relationship ends. Those obligations can create exit costs even when the license language looks routine.
9. Dispute resolution and governing law: Read the governing law provision together with forum selection, arbitration, jury or class waivers, fee shifting, and notice mechanics. Estimate the practical cost of the chosen forum, including local counsel and travel if relevant, and separately check whether an applicable franchise statute limits any contractual choice.

Franchisor Counsel and Operator Counsel Use the Same Checklist Differently

Franchisor-side counsel usually applies the checklist across the company's franchise relationships, not just to one agreement.

That can mean comparing an expiring agreement with the current renewal form and checking whether a proposed transfer satisfies the contract's conditions and deadlines. It also includes confirming that a default notice follows the agreement and applicable law and identifying older signed agreements that still contain language the company no longer uses.

Counsel at a multi-unit operator uses the same checklist from the other side. The review may cover development schedules, franchise agreements across brands, remodel obligations, guarantees, and cross-defaults that can connect one agreement to another. The checklist is the same; the team's preferred positions, escalation points, and business consequences are different.

How to Run the Nine-Clause Review With GC AI

The nine-item checklist above answers what counsel should review. The workflow below shows how an in-house team can run those checks consistently with GC AI.

1. Define the team's review standard.
2. Run the nine-clause check and verify the source language.
3. Research the applicable state law.
4. Apply proposed changes in Word.
5. Keep the matter's files and instructions together for the next review.

Define the Team's Review Standard

Use Easy Playbooks to turn the team's current form, negotiated examples, and approved positions into a reusable review standard.

For example, an operator-side team could encode an internal transfer position like this:

Example internal transfer position

Transfer and assignment. Prefer a consent standard that may not be unreasonably withheld. Flag transfer fees above our current approved threshold. Prefer a right of first refusal period no longer than 30 days and running concurrently with the consent process. Flag any personal guarantee that does not terminate or release at closing.

This is one example of an internal review position, not a statement of what the law requires. Each legal team should replace it with its own approved position.

Run the Clause Check and Verify the Source Language

Attach the agreement, addenda, guarantees, and other relevant documents, then run the playbook. The output should show where the documents depart from the team's approved position, what source language supports each finding, and what needs lawyer attention.

Exact Quote returns verbatim source language so counsel can check the finding against the document rather than relying on a paraphrase. That verification matters when the controlling term may sit in an addendum or incorporated document.

Research the Applicable State Law

Use Research after the contract issue is identified, not as a substitute for reading the contract. A California termination question could be framed like this:

Example Research prompt

The attached franchise agreement permits termination on 30 days' written notice for any default and is governed by California law. Under California Business and Professions Code sections 20020 and 20021 and other currently applicable California franchise relationship provisions, identify whether the termination clause can operate as written. Cite primary law, distinguish curable defaults from circumstances permitting immediate termination, and flag any uncertainty that requires further research.

Research can return cited authorities and analysis; counsel still checks the primary law before using the conclusion in a redline, notice, or recommendation.

Once the legal rule is established, GC AI's Contract Intelligence answers a different question: which executed agreements contain terms that may need attention? For example, add a Column for governing state and another for termination-notice period, then filter a View for California agreements with shorter notice periods. Research establishes the legal rule. Contract Intelligence identifies the agreements whose terms may be affected by it.

Apply the Changes in Word

GC AI for Word keeps the markup inside Microsoft Word, where counsel can review tracked changes, comments, and the revision history before sending anything outside the legal team.

Keep the Matter's Files and Instructions Together

Keep reusable templates and reference documents in Files, which makes permanent document collections available across chats. For a specific renewal, transfer, or dispute, use Projects to keep the matter's chats, files, and instructions together so the next conversation can build on the context the team has established.

Why Verification Matters More Than a Fast First Pass

GC AI's In-House Legal Bench, published in May 2026, evaluated 100 in-house legal tasks against more than 1,200 attorney-developed criteria. The overall pass rates across those criteria were:

• GC AI: 86.8%
• ChatGPT (GPT-5.5): 79.8%
• Claude (Opus 4.7): 68.4%
• Gemini (3.1 Pro): 57.5%

The largest margins were in regulatory tracking, legal research, and contract analysis; GC AI also led the tested assistants in checklists.

Those are relevant categories for franchise work, but the benchmark does not remove the human-review step. A useful first pass is one that shows counsel where the issue came from, what law supports it, and what still requires judgment.

Decisions That Still Need a Lawyer

The platform can surface the contract term, the cited law, and which agreements across the portfolio contain the issue. Counsel still owns the decisions that turn those findings into action.

• Transfer: Whether to approve, condition, or refuse a transfer depends on the contract, applicable law, the buyer, and the business relationship.
• Termination: Whether good cause exists and whether a statutory exception applies depends on facts and jurisdiction, not just the extracted clause.
• Renewal: Whether to accept the then-current form or negotiate changes depends on leverage, performance, capital commitments, and the business's alternatives.

A prospective franchisee buying a single unit should have franchise counsel review the FDD and agreement before signing. The FTC's Consumer's Guide to Buying a Franchise explains the purpose of that review. The workflow here is aimed at in-house teams that run franchise review repeatedly.

Make Franchise Review Repeatable Without Giving Up Lawyer Judgment

A strong franchise review does more than redline one agreement. It connects the franchise agreement with the FDD, incorporated standards, guarantees, state addenda, and applicable law, then applies the legal team's approved positions consistently to each renewal, transfer, or new form agreement.

GC AI can make that recurring work more consistent and easier to verify, but counsel still decides what the company will accept, negotiate, approve, or enforce.

Start with one franchise matter, run the playbook next to counsel's own review, compare what it catches and what needs correction, and refine the standard before using it across more agreements.