Franchise agreements

 

Franchise agreements are the central legal documents that govern the franchise relationship. They are legally binding documents between the franchisee and franchisor that set out the rights and obligations of both parties.

They are very important documents, as not only do they set out the contractual rights common to any contractual relationship, they also shape the way in which the franchises will operate. There is, therefore, no pro forma franchise agreement, as every franchise arrangement is unique and will have its own terms and conditions.

What is a franchise agreement?

A franchise agreement is a very important document that covers all aspects of the franchise. It covers specific concrete terms such as:

  • The date and term of the contract
  • Option for renewal
  • Termination procedure

It also covers operational aspects of the business and, in this way, influences the way in which the business can be conducted. In addition to specifying what you must do as a franchisee in order to fulfil your responsibilities under the franchise contract, it will also set out restrictions, such as:

  • On your use of the trademark and logo
  • Geographic restrictions on your customer base and advertising

It is therefore essential to seek specialist legal advice from a specialist franchising solicitor before signing a franchise contract or paying a deposit.

The finances

The contract will also regulate the financial affairs of the franchise, in terms of the money that is payable from the franchisee to the franchisor in the form of fees and costs. The contract will set out the:

  • Initial franchise fee
  • The management service fee payable
  • The amount required to be contributed by the franchisee towards certain costs paid by the franchisor

It is important to seek advice on the financial consequences of your obligations under these terms.

Resolving disputes

When conflicts arise in the franchise, or even when uncertainties arise, it is to the franchise agreement that both parties will turn. Franchise agreements should clearly set out responsibilities, and thus should be able to be relied upon in order to resolve operational and transactional questions that arise in the setting up of and day-to-day running of the franchise.

As you can see, these factors have significant impact upon your freedom to operate your business, and on its financial viability as an investment, and it is for this reason that it is crucial to negotiate a franchise agreement that represents your interests and requirements.

It is similarly crucial that you understand precisely the legal and financial implications of the terms and conditions you are signing. You should obtain legal advice from a specialist franchising solicitor before signing any documents or providing a deposit.

Particular aspects of franchise agreements that you must consider include:

  • Term and option for renewal
  • Termination and cancellation
  • Exit and sale
  • Fees and costs
  • Location and territory
  • Operations
  • Restrictions
  • Training and on-going support

It is always recommended to seek legal advice before entering into a franchise agreement. Attempting to decipher the terms of the franchise agreement alone could prove extremely costly later on in the future of the business if disputes arise. The most cost-effective method is to seek advice from a solicitor at a meeting in the early stages of the franchise investment process.

For more general information on franchises, see our help page on franchise law.

Do you need a franchising agreement drafted or checked? Contact Law works with specialist franchising lawyers who are on hand to help you with your franchising needs. Please call us on 0800 1777 162 or complete the web-form above.

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