🕒: Three minutes
What is the Franchise Agreement?
The franchise agreement is a legal contract drawn up between the franchisor and the franchisee. This contract outlines the terms and conditions under which you will be operating when you begin your franchise arrangement. The franchise agreement is essentially your roadmap to understanding your rights and your responsibilities, either as a franchisor or as a franchisee.
This agreement is the most essential documentation involved in the franchising process and it is imperative that you understand the full implications of every detail contained in this legally binding contract. Every franchise agreement is different – some are very general and open to interpretation, giving the franchisee greater freedom of operation. Others lay out their terms very explicitly and, in doing so, provide substantial guidance regarding how to establish and run the franchise.
In the case of any dispute which arises between a franchisor and a franchisee, the franchise agreement will be used to distinguish whether any breach of contract has occurred. Therefore, before signing this agreement, it is highly recommended that you seek professional advice, ideally from a lawyer with prior experience of these contracts.
What does the franchise agreement include?
The franchise agreement will cover a broad range of terms, conditions and obligations pertaining to both the rights and the responsibilities of the franchisee and the franchisor. Though there is variance in these, there are a number of essential clauses which should be covered by this agreement including:
- What is the duration of the franchise agreement?
- Does the franchisee have an automatic right to renew the franchise agreement when this end date is reached?
- What are the key responsibilities of the franchisor?
- What are the key obligations of the franchisee?
- Who own the intellectual property rights of the franchise e.g. the brand name, the trademarks and any associated patents?
- Is there a specific territory to be allocated, and will this territory be exclusive?
- What fees, beyond the initial investment, will be required e.g. marketing fees, royalties?
- What initial training will the franchisee receive? Will the travel and accommodation costs of this training be paid for by the franchisor or the franchisee?
- After the initial training, what kind of support (if any) will the franchisor provide?
- Is there a minimum performance requirement and how is this measured?
- Under what circumstances may the franchisor terminate the franchise agreement prior to the expiration date?
- Under what circumstances may the franchisee terminate the franchise agreement prior to the expiration date?
- Are there any confidentiality clauses?
- Are there any competition restrictions in place and how long will these last?
What are the key benefits of a franchise agreement?
Signing the franchise agreement is fundamentally the final stage of the franchising process. After this, undergoing or supplying training and running the business will be your main concerns. The franchise agreement has developed as an essential stage of starting a franchise as it is of great benefit to both franchisees and franchisors.
This essential contract provides security and peace-of-mind when you are either joining a franchise or signing up a franchisee to develop your existing business model. Signing this franchise agreement is a show of faith on the part of both you and your new business partner, and it is the clearest indicator that you genuinely understand what it means to be part of a franchise network.
The franchise agreement is a chance for you as a franchisor or a franchisee to look impartially at the opportunity you are seizing and it gives you a final chance to evaluate the long-term impact of your decision. This means that once you have started your franchise, or handed over a specific territory to a new franchisee, you can do so secure in the knowledge that you have made a fact-based and well-reasoned decision.