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What is a Franchise Agreement?

Franchise Agreement

The franchise agreement is the written contract between the franchisor and franchisee. It is the fundamental legal document upon which the franchisor-franchisee relationship is based. The franchise agreement details the conditions that both the franchisee and franchisor must understand and accept. It also specifies the precise obligations, responsibilities and rights of each party to the contract, as well as the actions that the franchisee and franchisor are prohibited from engaging in. Both the franchisor and the franchisee must sign the franchise agreement, as it is the legal document that binds the two parties.

While there are no standard guidelines or format requirements for franchise agreements, and the precise details and operating methods specified in franchise agreements vary from franchise organization to franchise organization, as with many legal documents of similar nature, franchise agreements often feature the same or similar elements. Some of the contractual terms typically addressed in the franchise agreement, include: franchise fees, estimated costs, duration of the contract, location/protected territory, training programs, support, applicable financing programs, obligations of both parties, multi-unit rights, trademark rights, advertising and marketing, equipment, proprietary systems and products, and more. Every franchise organization is different and therefore each franchise company has its own unique franchise agreement that outlines the terms and conditions of the contract. It is recommended that prospective franchisees consult with a franchise attorney who is familiar with the laws that govern the franchising industry, since franchise agreements typically favor the franchise company.

The five-day waiting period for signing the franchise agreement allows prospective franchisees the time to thoroughly review the document and consider the various terms detailed in the contract prior to signing the agreement.

Due to the FTC regulatory compliance and disclosure obligations that franchise companies must adhere to, certain terms of the franchise agreement cannot be negotiated. However, some aspects of the franchise agreement may be negotiable. Terms such as, territory size, area protection and development rights, may be open for negotiation. Asking the franchisor which, if any, aspects of the franchise agreement are negotiable, as well as whether the franchisor offers other incentives or special discounts, prior to signing the franchise agreement is vital. Any provisions to the original terms of the agreement must be specified in writing in the final version of the franchise agreement. A franchise attorney should thoroughly review and inspect the franchise agreement in its final form, prior to the would-be franchisee signing the contract.
 

Categories: Frequently Asked Questions, Buying a Franchise, Franchisor Information