Franchise Agreements

10-Key Provisions of franchise agreements

The Franchise Agreement is a legal document governing the franchisee/franchisor relationship. There is no standard format or agreement because the terms and conditions vary from franchise to franchise and from people to people. In general, there are ten key provisions in any franchise agreements.

1. Training and/or ongoing support is provided by the franchisor. Each franchisor has its own training program for franchisees and their staff. McDonalds is one franchisor that provides at least nine-months training. Most franchisors offer ongoing support which includes administrative and technical support. There are some franchisors that may or may not offer training.
2. Assigned territory. The franchise agreement will let you know where you will be able to operate and whether or not you have exclusivity rights in that territory.
3. Duration of franchise agreement. This is self-explanatory in that the provision will state the length of the agreement.
4. Franchise fee and total anticipated investment. This will spell out the required payments to the franchise fee that will grant you the right to use the franchisor's trademark and operating system.
5. Trademark, patent and signage use . This will cover how your franchise can use the franchisor's trademark, patent and signage.
6. Royalties and other fees. This spells out the amount of royalty you will be required to pay, which is usually between 4 to 8 percent of total sales on a monthly basis.
7. Advertising . The will let the franchisee know what they are expected to do in their advertising commitment and what fees they are required to pay towards those costs.
8. Operating protocol. This section deals with how the franchisees will run their outlets.
9. Renewal rights and franchisee termination/cancellation policies . These deal with how the franchise can be renewed or terminated.
10. Resale rights . Some franchisors will allow franchisees to sell their franchises for whatever reason, but some may write in buy back or right of first refusal clauses, which allow the franchisor to buy back the franchise at a rate determined by them.

Before signing any agreement, especially a franchise agreement, make sure you are very comfortable with all of its provisions. To do this, you should retain a lawyer especially if you want the franchisor to make changes to the franchise agreement.

Many franchisors will negotiate terms of their franchise agreement while others may not. The reasons may be based on the size and maturity of the franchisor. For example, a well known franchisor such as Subway or Starbucks does not need to negotiate their agreement while a new franchisor may be far more willing to agree to changes so they can sell a franchise.

Another thing to remember is that franchisors are not necessarily able to simply change provisions in a franchise agreement because they may be guided by franchise regulations, state statutes and sound business practices.

Before actually negotiating the franchise agreement there is a process you should follow. One is to engage an experienced franchise attorney, confirm that the franchisor will negotiate terms of the agreement, recognize that certain terms are non-negotiable and focus on the important point in the agreement.

Examples of Provisions can include:

• Restrictions on products and services that you want to sell
• Marketing or selling in ‘open' territories
• Indemnification provisions. Be careful you are not held liable for loses or damages that are not caused directly by the acts of you or your employees.
• Advertising

The Transfer and assignment section: This section presents the conditions and requirements for selling your franchise to a third party. Your ability to sell your franchise may contain some restrictive language so be sure your attorney should carefully review this section and make sure that you understand your responsibilities and rights.

A franchise agreement is a complicated document and by design it favors the franchisor. Make sure that before you sign on the dotted line that you fully understand your obligations and are comfortable with the final agreement.