A client recently brought us an AI-drafted purchase agreement for a franchise resale. It looked polished—professional formatting, clear language, all the right headings. It was also missing protections that would have exposed them to six figures in liability.
If your buyers and sellers are using AI for legal work, there’s a good chance it’s putting their deals at risk.
This is happening more often in franchise transactions. Buyers and sellers are using AI to research claims, draft agreements, review leases, and prepare for disputes. We understand the appeal. It’s fast, accessible, and it sounds confident. But when it comes to legal matters, confidence is not the same thing as accuracy—and the fallout often lands in the middle of a deal you’ve worked hard to put together.
Why AI Fails in Legal Contexts
Generative AI does not “know” the law. Its guiding principle is to give the user the answer they’re looking for. If someone asks whether they have a claim, it will find them one. If they ask it to review an agreement, it will generate a list of concerns—whether or not those concerns are legally relevant. It wants to be helpful, not accurate.
That means it can cite statutes that don’t exist, reference cases that were never decided, confuse legal doctrines, and omit critical protections in agreements—all while sounding completely authoritative. Generative AI is only as good as its source material and most legal cases and secondary sources are behind paywalls and not accessible to it.
How This Affects Transactions
On the transactional side, AI-generated documents often miss what matters most. We recently reviewed a seller financing package where AI misunderstood the purpose of standard personal guarantee provisions. Specifically, it flagged routine waiver language—provisions that simply prevent a guarantor from using legal technicalities to escape liability—and characterized them as stripping away the guarantor’s rights. The opposing party, relying on AI, came back with a long list of requested changes based on that misunderstanding. Almost none of them were warranted. What should have been a straightforward closing turned into unnecessary rounds of negotiation.
We have seen Generative AI review franchise disclosure documents and completely fabricate the startup costs and financial condition of the franchisor. Relying on these inaccurate financials could be devastating for a franchisee. We’ve also seen leases that were fully negotiated and nearly finalized, only to have a party run the document through AI and return with dozens of margin comments suggesting changes that were either irrelevant to the deal or legally incorrect. That kind of rework doesn’t add value—it adds cost, delays timelines, and creates friction between parties who were otherwise aligned.
Franchise agreements are highly technical. Development rights, renewal terms, default remedies, transfer restrictions, and personal guarantees are shaped by industry practice, enforcement history, and strategic leverage. When buyers or sellers rely on AI-generated language instead of experienced franchise counsel, it often requires additional time to correct inaccuracies and restore structural integrity, delaying closings and increasing costs.
How This Affects Disputes
The risks are even more significant when disputes are involved. When a franchisee describes a difficult experience with a franchisor—lack of support, broken promises, unfair treatment—AI responds with validation. It tells them the franchisor is in the wrong and generates a list of dramatic-sounding claims and potential causes of action. It doesn’t push back. It doesn’t ask hard questions. It gives them the answer they were hoping for.
What it won’t do is evaluate whether those claims hold up in a specific jurisdiction, assess whether the statute of limitations has already run, or perform a realistic cost-benefit analysis. We regularly have conversations with clients where AI has suggested claims that simply don’t apply—and it takes longer to walk through why those claims fail than it would to perform the analysis from the start.
For brokers, this matters because a client who enters a transaction or dispute with inflated expectations based on AI output is more likely to make decisions that complicate or collapse a deal.
Where AI Falls Short
AI does not understand how franchisors operate in the real world. It does not negotiate. It does not anticipate how certain language will be interpreted in arbitration or litigation. And it does not carry professional responsibility for the outcome.
That doesn’t mean it has no value. AI can be useful for organizing facts, summarizing background information, or helping someone frame questions before a consultation. But legal analysis, enforceable agreements, and claim evaluation require experience, judgment, and accountability that no predictive text engine can provide.
What This Means for Your Clients
When your buyers and sellers have the right legal counsel in place early, deals move more smoothly—fewer surprises, fewer delays, and fewer last-minute issues that put closings at risk. Part of our role is to give clients an objective assessment and protect their interests without creating unnecessary obstacles to a transaction.
We’ve seen firsthand how much smoother the process is when clients come to us before turning to AI for legal work rather than after. If you’re working with a buyer or seller who could benefit from experienced franchise counsel, we’re happy to be a resource.
The Bottom Line
Your clients’ franchise investments deserve more than a confident guess. When they have counsel who understands franchise law, it protects their interests—and it protects the deals you’ve worked hard to bring to the table.
If you’d like to connect us with a client or discuss how we can support your ongoing deals, you can reach Luther Lanard, PC – via our Franchisee Legaline Network.
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Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the AAFD. Information provided on this article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this article is for general informational purposes only.
