The franchise agreement is a crucial legal agreement. As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and the franchisee as well as the relationship between them. If any disagreements should arise the franchise agreement will be used to address these issues.
Negotiatate your franchise agreement - don't think that you have to accept the first terms that are presented.
Seek legal advice
Don't sign any agreement, or pay any fees or deposit, until you have taken legal advice from an experienced franchise solicitor accredited by the British Franchise Association. Get a specimen contract for them to review.
Objectives of a franchise agreement
The franchise agreement should:
- contractually bind the franchisor and the franchisee by accurately stating the terms agreed
- protect the benefit for the franchisor and franchisee as well as protecting the franchisors intellectual property
- clearly define the rules to be observed by both parties
Franchise agreement - key areas covered
- Term - how long does the franchise last? Will you have the option to renew it, and on what terms?
- Territory - what area does your franchise cover? Do you have exclusive rights to sell within it?
- Fees - what initial fee will you pay? What percentage of sales revenue will you pay? Will you pay a regular management fee - and if so, what does it cover? Will you have to pay other costs? How are the costs worked out?
- Support - what kind of support can I expect? How much help will you get starting the business? What continuing support will you get?
- Restrictions - what restrictions are there on what you're allowed to do and how you must run the business?
- Exit - what happens if you can't continue in the business for some reason - perhaps due to ill health? What happens if you want to sell your franchise?