What is a Franchise Agreement?

A Franchise Agreement is a document which sets out what is required by the Franchisor and Franchisee in any situation which may arise during the course of the franchise relationship.

Some of the main terms that are commonly found in a Franchise Agreement include:

Rights granted to the Franchisee

The franchisee is normally granted the right to use the Franchisor’s

  • name,
  • trademark, and
  • system.

Franchisor’s Obligations

These terms set out what is required by the Franchisor, for example

  • what training is to be provided,
  • what advertising and promotion is to be undertaken,
  • what support is to be given.

Franchisee’s Obligations

These terms set out what is required by the Franchisee, for example

  • the services to be provided,
  • the methods to be used,
  • the manuals to be followed,
  • the standards to be maintained, and
  • the way that the business is to be promoted.

Payment Provisions

These set out initial and ongoing fees, such as

  • licence fee royalties,
  • communication fees, and
  • advertising contributions.

Terms and Termination

These terms deal with

  • how long the franchise relationship will last,
  • how it will come to an end,
  • whether the agreement can be renewed by the franchisee, and
  • what happens on termination.

Restrictions

These restrictions include things such as

  • restrictions with suppliers,
  • prohibitions against operating a competing business, and
  • restrictions on the recruitment of employees after termination.

Resale Rights

These terms set out the method by which a Franchisee may sell the franchise business. Some franchise systems allow their franchisees to sell the franchise business, while other franchise systems write in buy back or right of first refusal clauses.

If you need a franchise agreement drafted or if you already have a standard franchise agreement which you want reviewed contact us so that we can assist you to ensure that you franchise agreement is a usable and enforceable document which reflects your franchise system.

Further Information

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