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Franchisee checklist - the franchise agreement

Written by: Diarmuid Kieran

Article Overview: What factors to consider before signing the franchise agreement

Franchisee checklist - the franchise agreement

1. What is the duration of the franchise agreement? It should last for a sufficient period of time to allow the franchisee to recoup his/her investment.

2. Will the franchisor allocate a specific territory? If so, is it exclusive?

3. Will the franchise business depend on the sale of goods? Will the franchisor supply these goods? Will the franchisor control the retail price?

4. Will the franchisor recover income from profit on the sale of goods to the franchisee under an exclusive purchase agreement?

5. Is there a minimum package (stock, equipment or staff) which must be maintained by the franchisee? Does the franchisor supply any, or all, of this package?

6. What are the levels of the initial fee, continuing payments (including advertising contribution) and any other contribution payable by the franchisee? How are they calculated and how frequently are they paid?

7. Does the agreement impose a minimum performance requirement? If so, how much is it and for what period of time? What are the consequences of non-achievement of the minimum performance target (termination, non-renewal of the agreement)?

8. What are the consequences if the franchisee becomes incapacitated or dies? Will the agreement be terminated? Will the franchisor appoint new management? Will the franchisee's family have the option of continuing in the business?

9. Does the agreement comply with the regulations and code of ethics of your national franchise association?

10. What are the conditions under which the franchisor may terminate the agreement? What is deemed to be a "fundamental breach of agreement"?

11. What are the conditions under which the agreement may be renewed?

12. Under what conditions may the franchisee terminate the agreement prior to expiry?

13. Will the franchisee be compensated for any "goodwill" created during the term of the agreement should he/she decide not to renew the contract?

14. Will the franchisor require a block insurance policy or be named on a policy taken out by the franchisee?

15. What constitutes the franchise system's intellectual property rights? Who owns them? How are they protected (patents, registered trade marks etc)?

The relationship between franchisor and franchisee is governed by a contract. It is crucial that you seek professional advice when negotiating yours, preferably from a lawyer who has experience of franchise agreements.

Related Articles
  The franchise sale
  Franchise Agreement Key Provisions
  Make the Most of the Franchise Agreement
  "Untouchables" and "Discussables"
  Franchise Agreements The Basics

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Related Forum Posts
Protecting IP - Dear BigJim 22 Sure as long as it is in the Franchise agreement... ie wht you are offering as Francisor and what their obligations are as Franchisee It is all in the agreement........ take care Ian
Franchisers approach for Negotiations - There are a number of ways to negotiate with a franchiser. With respect to advertising, I would recommend reviewing the aafd.org standards on advertising and try to get your franchiser to basically redraft their franchise agreement to meet those standards. The reason for this is the advertising helps the entire system and every franchisee needs to know that their advertising dollar is really going to third parties who have expertise in the area. Territories are very different. You should try for amendment to the franchise agreement, which reflects your own territorial needs. Don't try to change the franchise agreement, just add to it. To get a territorial change, you have to present a good business case, which addresses the franchiser’s need for expansion. It would be helpful if you could discuss your actual concerns in further detail
Franchisers approach for Negotiations - Jim makes a good point: each state is different in what it will allow as a post disclosure negotiation. My original point was to look at changes that could be systematic. Here is another example: most franchisers want to have the head lease, but don't really want the responsibility of being a tenant. They want the head lease so that they can easily take control of an errant franchisee. However, the franchise is left in no-man's land when trying to deal with the real landlord. The solution to this problem is for the franchise agreement to be changed so that the franchiser has an option assignment of the lease; the option is conditional upon a non-curable breach of the franchise agreement.
Re: Franchising Brokers vs Franchising Consultants - [quote:1lmuawph]Most brokers won't help or assist with the negotiation of the sales agreement, not wanting to offend the franchisor. And many do not have a clue as to what items are negotiable, and which items are not.[/quote:1lmuawph] Hi Mayor Dan... could you provide a short list of what IS negotiable in a franchise agreement?
The Old Girl's Network - (2003) - Haven't read this one yet... Contents A business of one's own: setting the stage Passion: Turning what you love into a real business Vision: Bringing Your Idea Into the World Pioneering Spirit: Discovering new frontiers Tenacity: Passions Bulldog Raising Capital: Translating your vision into dollars and cents Focus, feedback and flexibility Leadership lessons Life after the survival stage: Managing onward There's a Took Kit in the back that has lots of good stuff, including: Outline for competitive analysis: the basic issues to address before starting your company Outline for executive summary and business plan, with sample summary Explanation of non-disclosure agreement Milestone setting "Do you have what it takes" quiz Sample financing term sheet Due Diligence checklist Sample advisory agreement Process and systems review Outsourcing overview


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