Standard Franchise Agreements
There is no real template for franchise agreements, although the one thing that most all of them have in common is that they are extremely skewed in favor of the franchiser. Certain provisions will be addressed by all franchise agreements, but the terms, conditions, and methods of operations will vary widely. Most franchise contracts consist of a purchase agreement and a licensing agreement. Sometimes, these are two entirely separate contracts. It is possible to negotiate provisions of the agreement, but it is wise not to attempt this without professional legal help.
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Purchase Agreement
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The franchise contract will include the price and a detailed list of what the franchisee is purchasing from the franchisor. This will be comprised of equipment, inventory and other items in the franchise package. Many times these may be considered confidential by the franchisor. Method and terms of payment will also be specified (usually a deposit to be paid upon signature and payments upon delivery of equipment and at subsequent stages of operations).
Territory
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A franchise agreement will stipulate a specific geographic area that the franchisee can expect to have as his sole domain. The franchisor is prohibited from selling another franchise within the territory that would unfairly compete with the franchisee. In many cases, the contract could prohibit the franchisee from buying another similar business or other franchise within that territory as well. The franchisor should assist the franchisee in finding a suitable property and have it converted to the franchised business.
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Operations
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An important part of the franchise agreement will detail the services the franchisor is required to provide to the franchisee. "Initial services" are those provided prior to the franchise being open and ready for business. "Continuous services" are those provided to the franchisee on an ongoing basis. An example of an important initial service provided by the franchisor is training the franchisee and her staff. An example of a continuous service would be providing assistance in developing and enhancing business systems, management support and accounting services.
Trademarks and Signage
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The franchisor is obligated to provide the franchisee with brand images, décor, trademarks, secret methods and other copyrighted materials. The franchisee has the responsibility to conduct the franchised business in strict accordance with the franchisor's directions. This can include using authorized vendors and suppliers. In most cases, a franchise agreement will stipulate that advertising cannot be done by the franchisee without the prior approval of the franchisor.
Cancellation
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Many states have laws that heavily regulate the termination of franchise agreements by the franchisor. In most cases, termination or nonrenewal of franchise licensing can only be done for just or good cause and must follow specific notification procedures (generally ranging from 5 to 90 days). Detailed provisions for the franchisee choosing to sell the franchise should also be included in the franchise agreement. Often, franchisors reserve the right to approve potential buyers and require that they meet certain qualifications.
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References
- Photo Credit contract 20309 image by pablo from Fotolia.com
