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A franchise agreement can control a business relationship for years. It determines what a franchisee must pay, how the business must operate, what rights the franchisor retains, and what happens when the agreement reaches the end of its term. Signing or drafting that agreement without understanding its practical effect can create problems that are difficult to correct later.
Franchise.Law assists franchisors with drafting and maintaining franchise agreements that support their systems and protect their brands. We also assist prospective franchisees with reviewing franchise agreements before they sign, in many cases. Reach out today to learn how a franchise agreement lawyer can help.
A franchise agreement is the contract that establishes the legal relationship between a franchisor and franchisee. It gives the franchisee the right to operate under the franchisor’s brand and system while establishing the conditions attached to that right. These agreements cover a wide range of rights and obligations, including fees and geographic territories. They are central to the relationship, which is why it is important to rely on a franchise agreement attorney when drafting the contract.
Every franchise system operates differently, so franchise agreements should reflect the particular business rather than rely on a generic contract. Your attorney could help you address the following franchise agreement issues:
The agreement should explain the initial franchise fee and continuing financial obligations, including everything from royalties to advertising contributions. For franchisors, clearly defining these obligations can prevent uncertainty as the system grows.
Territorial provisions determine where a franchisee may operate and what protection, if any, the franchisee receives within a particular geographic area. An agreement may provide an exclusive or protected territory, or it may reserve significant expansion rights for the franchisor.
Franchisors need the ability to maintain consistency throughout their systems. Franchise agreements commonly require franchisees to follow operating standards, use approved products or suppliers, maintain specified hours, adopt required technology, and comply with an operations manual.
These provisions help franchisors protect the brand across multiple locations. Franchisees should understand how much control the franchisor retains over business operations and what continuing investments compliance may require.
The agreement gives the franchisee limited permission to use the franchisor’s trademarks and other intellectual property. It should explain how the franchisee may use those assets and when that right ends.
A franchise agreement may establish the franchisor’s obligations concerning initial training and continuing support. The details vary significantly among franchise systems, and the agreement should accurately reflect the support the franchisor intends to provide.
A franchisee may eventually want to sell the franchised business or transfer an ownership interest. Franchise agreements commonly place conditions on those transactions. For example, the franchisor may retain approval rights and require a proposed buyer to meet specified qualifications. There is a lot of flexibility when it comes to the sale or transfer of a franchise.
A franchise agreement does not give the franchisee a permanent right to operate under the brand. The agreement generally establishes a fixed term and specifies whether the franchisee may qualify for renewal.
The agreement should identify conduct that constitutes a default and explain the franchisor’s contractual remedies. Some defaults may provide an opportunity to cure the problem, while other circumstances may permit termination without the same cure period, subject to applicable law.
The franchise agreement is the backbone of the relationship, and its terms must be fair whether you are a franchisor or franchisee. At Franchise.Law, we could work to ensure that your agreement protects your rights and complies with the law. Reach out today for a private consultation with a franchise agreement lawyer.