Understanding the Franchise Agreement

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What is a Franchise Agreement?

A franchise agreement is a legally binding document that brings together the Franchisor and Franchisee. It is this document that sets out the rights and obligations of each party and the terms set for the franchise venture. You should have it reviewed by a solicitor familiar with franchise matters, especially since most agreements are extremely one-sided in favour of the franchisor this is usually because the franchisor will need to protects its brand, intellectual property, and other important items which it has worked hard to protect over the years.

Inside the Franchise Agreement

The Franchise Agreement will contain provisions covering, in considerable detail, the obligations of the franchisor (the company) and franchisee (you) regarding operating the business. Most Franchise Agreements will cover the following

• What training and operational support the franchisor will provide (and at what cost and to whom this cost is passed on to.
• Your given territory and any exclusivity received.
• The initial duration of the franchise agreement and any renewal rights.
• How much capital you must invest..
• The fees that are payable both upon signing of the agreement and any ongoing fees such as Royalty Fees and Marketing Levy costs.
• The Franchisors obligations.
• The Franchisees obligations.
• Termination of the Franchise Agreement.
• Operating practices .
• The supply and purchase of goods and or services.
• Preferred suppliers list if any.
• Marketing and advertising policies.

The Franchisor will also want to ensure that it is able to:

• Monitor the performance of the franchisee through a variety of checks.
• Protect its Intellectual Property including its Trade Marks, brand, logos and any other important information vital to the business
• Have control over the franchisee to ensure that its operating practices are adhered to, this is extremely important to Franchisors as it needs to ensure that all its franchisees are following the same guidelines.

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