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Franchise Agreement Key Provisions

Written by: Sebastien Page

Article Overview: When it comes to the Franchise Agreement – the legal document that technically governs franchisor/franchisee relations – there is no standard format. Terms and conditions of operations vary from franchise to franchise and from industry to industry.

Franchise Agreement Key Provisions

When it comes to the Franchise Agreement – the legal document that technically governs franchisor/franchisee relations – there is no standard format. Terms and conditions of operations vary from franchise to franchise and from industry to industry. Generally, however, Franchise Agreements cover:

1) Franchise Fee and Total (Anticipated) Investment: In order to gain the right to use a franchisor's trademark and operating system, franchisees are required to pay an initial franchise fee.

2) Training and/or Ongoing Support Provided by the Franchisor: Every franchisor provides its own unique training program for franchisees and franchisee staff. These programs can include training done at corporate headquarters, a franchisee's location, or both. Franchisors frequently offer ongoing support that includes technical and administrative support.

3) Territory Assignments: The Franchise Agreement designates the territory in which you as a franchisee can operate and whether or not you have exclusively rights.

4) Franchise Agreement Duration: The length of the Franchise Agreement is stated in the Agreement.

5) Advertising: In the Franchise Agreement, the franchisor will reveal its advertising commitment and the fees franchisees are required to pay towards those costs.

6) Trademark, Patent and Signage Use: How a franchisee can use the franchisor's trademark, patent and signage is covered in this provision.

7) Royalties and Other Fees: The vast majority of franchisors require their franchisees to pay an ongoing monthly royalty of around 4-8 percent of total sales.

8) Operating Protocol: This provision explains how franchisees run their outlets.

9) Resale Rights: While some franchisors allow franchisees to sell their franchisees regardless of their reasons, many write buy back or right of first refusal clauses into their Franchise Agreements, allowing the franchisor to either buy back the franchise at a predetermined rate or match any potential buyer's offer.

10) Renewal Rights and Franchisee Termination/Cancellation Policies: How the franchise can be renewed or terminated is dealt with in these provisions. Occasionally franchisors have an Arbitration Clause in their Franchise Agreements, meaning that, in the case that legal action on either side is warranted, an arbitrator will review the case instead of going to court.

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  Ensuring Franchise Success

Article Tags: administrative support, clauses, corporate headquarters, duration, first refusal, franchise agreement, franchise agreements, franchisee, franchisees, franchisor, initial franchise fee, legal document, ongoing support, operating system, patent, provision, resale rights, royalties, royalty, unique training



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Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.


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