How to Review Franchise Agreements Using AI: Complete Guide

Franchise agreements are packed with legal details that demand careful review. Traditionally, the review process has been time intensive. Now, AI tools present solutions that speed up and improve agreement reviews.

AI tools like Spellbook go beyond basic automation to transform how lawyers review franchise agreements. With Spellbook, you can:

• Compare clauses to standardized templates and instantly flag missing or inconsistent terms.
• Redline agreements automatically to accelerate more thorough reviews.
• Verify compliance with cross-checking franchise agreements against FTC Franchise Rules and other regulatory standards, flagging provisions that may introduce legal risks or require adjustments for full compliance. 
• Identifies missing or non-standard clauses, suggests recommended additions, and flags ambiguous language that could lead to legal disputes. 

By taking advantage of AI’s capabilities, lawyers can reallocate saved time and energy to higher-value strategic work. Read on to learn how AI tools like Spellbook can enhance your franchise agreement review process. 

Reviewing Franchise Agreements Using AI

Reviewing a franchise agreement manually is time-consuming and prone to error. Even a single oversight in royalty structures, renewal terms, or territorial restrictions can lead to costly disputes down the line. For legal professionals, the review process can take 4–6 hours or longer per contract. Constant interruptions increase the odds of overlooked inconsistencies, unmitigated risks, or missing clauses.

On the other hand, AI-powered tools like Spellbook take only seconds. Spellbook will spot deviations from standard franchise terms or industry benchmarks, flag missing clauses, and highlight clauses that may lead to non-compliance. 

This automated assistance not only reduces the time you’ll need to manually review franchise agreements but also improves your accuracy, helping you prevent critical issues like deadlines and royalty structures being overlooked.

Spellbook proactively reviews franchise agreements for regulatory compliance, highlighting risk-prone clauses and suggesting revisions to align contracts with FTC guidelines and industry best practices. This reduces the likelihood of contract discrepancies, helping a franchisor or franchisee avoid future litigation over a misunderstanding. 

What Are The Key Components of a Franchise Agreement?

A thorough franchise agreement review is essential to protecting both franchisors and franchisees from legal and financial pitfalls. But what do legal teams look for when reviewing franchise agreements? 

Understanding an agreement’s key components is crucial for assessing its fairness, compliance, and long-term implications. For example, McDonald’s franchisees must follow specific operational guidelines, from menu offerings to store design. 

This section breaks down a franchise agreement’s key elements and how AI tools can help in navigating them:

Franchise Fees and Royalties

Franchise fees and royalties are payments a franchisee makes to a franchisor in exchange for the right to operate under the franchisor's brand and business model. AI software can simplify the review of an agreement’s clauses on fees and royalties by comparing them to industry standards to determine their fairness. 

More specifically, AI flags fee structures that fall outside acceptable ranges. By sharing this information, you can help franchisors set competitive terms and assist franchisees in identifying potentially unexpected costs. 

In some cases, legal-specific AI tools like Spellbook can detect subtle changes in payment obligations buried deep within nuanced legal language, helping you provide full transparency over financial commitments.

For example, Spellbook enables franchise lawyers to review royalty clauses against standards from other agreements, flagging excessive fees and discrepancies while ensuring alignment with established benchmarks and prior contracts. 

Territory Rights and Restrictions

Territory rights and restrictions define the geographic area where a franchisee is allowed to operate without competition from other members of the franchise system.

Territorial disputes can be costly for franchisees. For example, a restaurant franchisee investing in a high-traffic downtown location may later find that the franchisor has approved another unit a few blocks away, leading to direct competition and reduced foot traffic. Without strong territorial protections in the contract, the franchisee may have little recourse, resulting in financial losses and strained franchisor-franchisee relationships.

Spellbook compares territorial clauses across multiple agreements, instantly identifying variations, inconsistencies, and potential restrictions that may require negotiation. 

Additionally, Spellbook’s redlining capabilities allow you to quickly identify and compare changes to territorial clauses, ensuring you don’t overlook modifications that may weaken your exclusivity. Spellbook’s benchmarking feature helps you assess whether an agreement’s territorial boundaries are consistent with industry norms. If a clause appears inconsistent or overly restrictive, Spellbook will flag it, giving you the leverage to negotiate fairer terms before signing.

Term and Renewal Conditions

The term and renewal conditions outline the duration of the franchise agreement and the terms for renewal upon expiration. AI tools have varying capabilities that can help track renewal deadlines when it’s time to renegotiate contract terms. 

AI tools like Spellbook have contract review features that simplify this process by automatically highlighting renewal clauses and generating a list of key deadlines, helping to ensure that parties never miss an opportunity to renegotiate terms.

For instance, Spellbook’s automated redlining highlights financial discrepancies, such as increased royalty rates, and suggests precise edits for negotiation, ensuring transparency and enforceability. 

This detailed approach not only helps you identify changes but also facilitates clearer communication and negotiation of those changes, ensuring you can address them effectively before renewing. This helps you ensure fair terms while you protect your clients' financial interests.

Exit Strategies and Termination

Exit strategies and termination clauses outline the conditions under which a franchising agreement can end, either by choice or under specific parts of the agreement.

AI can play a key role in evaluating exit strategies by simulating various scenarios and assessing potential impacts. Spellbook ensures compliance by flagging termination clauses that may violate franchise laws or disproportionately favor one party, helping legal professionals negotiate fairer terms. For example, if a contract allows a franchisor to terminate the agreement without notice, Spellbook will highlight this potential red flag, enabling you to renegotiate fairer exit conditions before committing.

Spellbook can be helpful when checking the sections listed below in your franchise agreements and offering suggestions to refine them:

• Early termination and associated penalties
• Buyout options for franchisees
• Transfer restrictions

Popular AI Tools to Review Franchise Agreements

AI tools have varying capabilities to simplify, speed up, and optimize legal work–especially when it comes to detailed and time-consuming franchise agreement reviews. Here’s a more detailed breakdown of Spellbook and other popular AI tools and how their key  functions can help your practice:

• Spellbook: Spellbook is designed explicitly for redlining, clause comparison, and legal risk detection when reviewing contracts. It automatically identifies problematic clauses and suggests revisions, highlights deviations from templates, playbooks, and industry standards, and flags ambiguous clauses–all features that significantly minimize future disputes.
• LawGeex: This AI tool reviews and redlines your legal documents according to your predefined policies, speeding up your franchise agreement reviews. It also automatically escalates contracts that don’t comply with your set policies for guided review and revision, helping you correct errors faster. 
• Evisort: While Evisort can also quickly spot specific clauses and risks, one of its most popular features is its ability to track expiring agreements. You can create automated customized alerts to help meet deadlines and avoid auto-renewals. 
• Kira Systems: Like Spellbook and the tools above, Kira Systems allows you to create custom templates tailored to your preferred franchise agreements. It also speeds up document reviews by extracting key clauses and reviewing multiple contracts simultaneously. 

While several AI tools can assist with franchise agreement reviews, Spellbook is specifically designed for legal professionals who need accuracy, efficiency, and risk mitigation. Unlike general contract review tools, Spellbook goes beyond basic redlining by identifying problematic clauses, comparing agreements against legal playbooks, and flagging risks that could lead to future disputes—all within Microsoft Word, where lawyers already work.

Key Takeaways

• Reviewing franchise agreements using AI tools like Spellbook helps lawyers quickly find important clauses, spot inconsistencies, track redlined changes, and suggest necessary changes, making contract review more efficient.
• AI tools like Spellbook ensure that franchise agreements meet legal standards by highlighting potential issues and helping lawyers make informed decisions before finalizing contracts.
• By combining the use of AI tools like Spellbook with their legal training and expertise, lawyers can review agreements faster with greater accuracy while protecting client interests. 

Frequently Asked Questions

Can AI Fully Replace a Lawyer in Reviewing Franchise Agreements?

No, AI can’t fully replace a lawyer in reviewing franchise agreements. AI makes the review process faster and more precise, as it can identify patterns, flag potential issues, and streamline repetitive tasks. However, lawyers must still apply their legal expertise to provide a nuanced interpretation. Human oversight ensures a thorough review that combines technological efficiency with professional judgment.

How Long Does It Take to Review a Franchise Agreement?

A franchise agreement review can take hours or even days if done manually, compared to just a few hours if done with AI assistance. AI reduces the manual labor involved in tasks such as clause detection and compliance checks, enabling a significantly faster analysis experience.

Can AI Help Ensure Consistency Across Multiple Franchise Agreements?

Yes, AI ensures consistency across multiple franchise agreements by applying preset guidelines through playbooks. It flags non-standard terms, safeguarding client interests. AI captures attorney expertise in templates, maintaining uniformity across contracts. This streamlines contract handling and enhances efficiency.