Every businessman knows that a franchise agreement is necessary when starting a franchising business. It is a legal and binding document between the franchisee and the franchisor.
The franchise agreement is essentially a legal document between the franchisor and you (the franchisee). It is a legal binding agreement. It explains in detail what the franchisor expects from you, as a franchisee, in the way you operate every facet of the business. There is no standard form of franchise agreement because the terms, conditions, and the methods of operations of various franchises vary widely depending on the type of business. Kerry Pipes, Franchise.com
However, there are details that franchisees miss out when looking at the franchise agreement that are equally important. Learn more about the other important details that should be included in the document before you affix your signature in the franchise agreement.
Franchise Agreement: Inclusive Provisions
According to ContractStandards.com, the termination provision in the franchise agreement tells both parties the conditions that can lead to the end of the contract and who can do such action. It should also include the responsibilities related to termination. This part of the franchise agreement explains the fees involved during a certain cancellation or termination of the contract.
Similarly, the franchise agreement should also include an after-termination provision. Whichfranchise.co.za says that after-termination clauses provide the information on what the franchisor is entitled to receive after termination in relation to the reasons of termination.
A group of lawyers from the UK advises that a franchise agreement should include renewal policies. This clause should tell both parties the necessary requirements in the event of an upgrade. This is also applicable when intending to bring the franchise agreement to termination. The clause should clearly define fees related to renewal and upgrade and who should shoulder these costs. Franchising.com also mentions that some franchise agreements include arbitration clauses in cases of legal action.
Franchisee and Franchisor Obligations
Franchisor obligation provisions should include 2 parts. The first part should enumerate the initial obligations and the other part is the list of ongoing obligations. The franchisee should pay particular attention to this part of the franchise agreement, because the franchisor will not be responsible for things that are not clearly stipulated in this section. As a franchisee, make sure that the franchisor will assist and support you in various areas of the operation like training and ongoing managing of the franchise business. Most often, this part of the document states that the franchisee should abide by the rules of the business manual.
Restraint Clauses in the Franchise Agreement
According to Special Legal Counsel Ludemann, restraint clauses protect the franchisors’ interests, so that the franchisee will not engage in a business similar to that of the franchise business. Franchisees should be wary of this, most especially if the franchisee is operating an existing business in another location. Make sure the rules have clear guidelines in terms of requirements like location, services rendered, etc.
Dispute Resolution Protocol
Another important part of the franchise agreement is the dispute resolution process. GreatFX printing blog advises it should also be interrelated to the process of termination if needed.
AllBusiness.com describes this part of the franchise agreement as the explanation of the processes related to the franchise business. In some instances, the franchise agreement should state that both parties need to keep the operating protocol updated and amend it when necessary.
As the title implies, this should include the many conditions where reselling should apply. In a lot of cases, franchisors do not allow reselling of the franchise for any reason. On the other hand, some franchisors allow it. However, the franchisor must approve of the resell first. In other circumstances, franchisors allow reselling but it should come with a corresponding fee.
There are also franchise businesses that require the franchisors to have the first option to repurchase a certain franchise branch. As such, all of these things should be explained clearly in this part of the document. According to Allbusiness.com, this is the “buy back” or “right of first refusal clauses”.
Note that there is no standard format of a franchise agreement. Therefore, you should not take the above details as legal advice. It is best to consult with a licensed franchise attorney and discuss its details most specially if there are items that seem vague or misleading. Evaluate the franchise business you want to be a part of. Lastly, make sure you work and partner with stable franchise businesses that will take care of your franchisee’s rights.
DetailXPerts offers a franchising opportunity that allows franchisees to voice out all their queries at its headquarters to prevent issues that may arise. The 5-stage green franchise application process is unique and truly effective.
Enjoyed this post? Sign up for our newsletter to receive more valuable business and franchise info, ideas, and extras!