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More on the franchise agreement

Written by: Diarmuid Kieran

Article Overview: Some important issues for the franchise agreement

More on the franchise agreement

The franchise agreement between the franchiser and franchisee is extremely important as it determines the rights and obligations of both parties once the franchise is up and running.

Franchisees are advised by the industry to get legal advice to ensure that the agreement is workable and it must clearly detail a number of issues so that the business can run effectively and any difficulties can be quickly resolved one way or the other.

The main areas that an agreement should definitely cover include the length of time the franchise will operate for until a renewal is required, the region the franchise covers and if it has exclusive rights to sell the product or service in it, the fees involved and the specifics of what the franchiser will provide in terms of training, stock, advertising and support services.

However, it should also set out any restrictions for franchisees, such as having to buy a specified amount of certain items from the franchiser.

Another important aspect to cover is the process involved if the franchisee wants to sell or transfer the business during the term of the agreement, so that franchisees know what they can and cannot do with the franchise's business methods and products.

Franchisees need to look out for a list of reasons that the franchiser will state as grounds for wanting to terminate the agreement in order to put rules and standards in place to prevent such things occurring.

In addition, both parties must ensure that measures are included in the agreement which protect the franchiser's intellectual property rights so that no other companies in the area can become established using a very similar or the same trade name, products and business methods.

There should be safeguards for things such as trade name, trade marks, confidential information and know-how and copyright.

This will protect the reputation of the franchiser and will also help franchisees, who in many cases will choose a franchise because of its high profile, success and strong brand image and will therefore want this image to stay intact in their area.

If all of these issues are included in the agreement, franchisees can feel confident that everything is in place for their business to run properly and they know exactly what is expected of them and the franchiser.

Even if there are changes to the franchiser firm, a good franchise agreement will mean that the rights of the franchisee will not be affected.

Related Articles
  "Untouchables" and "Discussables"
  Franchise Agreements The Basics
  How to Negotiate Your Franchise Agreement
  Hiring a Franchise Lawyer
  Franchisee checklist - the franchise agreement

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Related Forum Posts
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?
Internet consulting franchise - I'm not trying to be ugly, but you could call the current and former franchisees that are listed in the UFOC, right? Asking broadly in this forum if anyone knows anything about Netsapce/Netfran is not likely to yield anything useful, wouldn't you agree? Now asking specific questions about an aspect of the program or franchise agreement may get you better responses.
Re: 50 States - All Franchisees of the U.S. Government - [quote="RussellWebb":1twrc65u]Is this common knowledge in the franchise arena?[/quote:1twrc65u] This is not common knowledge in the franchise industry. I don't even see it this way. I don't think it's a franchisee/franchisor relationship at all. By definition, a franchise is the agreement between 2 legally independent parties which gives: - a person the right to market a product/service using the trademark or tradename of another business (franchisor) - the franchisee the right to market a product/servuce using the operating methids of the franchisor - the franchisee the obligation to pay the franchisor fees for these rights - the franchisor the obligation to provide rights and support to franchisees. The first 2 points don't apply to the federal/state relationship. The last 2 do.


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