What if I have minimum performance provisions in my franchise agreement?

Your franchise agreement is an important document that contains all the rights and obligations that apply to the franchisee and franchisor in relation to the franchise business. There are a variety of clauses that are generally included in a franchise agreement that you, as a franchisee, should be aware of. One such clause relates to meeting minimum performance criteria. Meetings these requirements is important as often failure to meet such criteria could result in termination of your franchise.
What are the criteria?
Minimum performance criteria can vary depending on the nature of the business that is being franchised and the management style of the franchisor. There may be basic requirements such as requiring the franchisee to complete a staff training program within the first year of trading. They may also be linked to the financial operations of the business and require that franchisees achieve a certain level of gross sales annually. The purpose of these performance criteria is to protect the franchisor’s business brand and reputation as well as ensure a high level of quality.
When preparing the criteria, the franchisor may take one of three approaches. The franchisor may choose to prepare a general set of obligations that all franchisees must meet. Alternatively the franchisor may develop a set of obligations that both parties agree are appropriate to develop the franchise. This is the most common approach and usually the most effective since both parties are able to collaborate and come up with obligations that they consider to be useful and achievable. Finally, on rare occasions the franchisees may be allowed to establish their own minimum performance criteria.
Consequences of failure to meet this provision
It is important to know your obligations to ensure you comply with the minimum performance provisions. Failure to meet these criteria could have varying results for the franchisee, including incurring additional costs, being required to attend further training, having your exclusive territory reduced or ultimately the franchisor being able to terminate the franchise agreement.
Conclusion
If there are no minimum performance criteria outlined in the franchise agreement, be sure to also check the operations manual. If these provisions are in the agreement or the operations manual, the franchisee has an obligation to meet these minimum performance criteria. If the provisions are complex or you would like to have a clearer understanding of your obligations, it is a good idea to get some legal advice from a franchising lawyer as soon as possible.
How to Protect and Enforce Your Trade Mark
Wednesday 11 May | 11:00 - 11:45am
Online
Corporate Governance 101: Responsibilities for New Directors
Friday 13 May | 11:00 - 11:45am
Online
How Franchisors Can Avoid Misleading and Deceptive Conduct
Wednesday 18 May | 11:00 - 11:45am
Online
New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects
Wednesday 25 May | 10:00 - 10:45am
Online
How to Expand Your Business Into a Franchise
Thursday 26 May | 11:00 - 11:45am
Online
Day in Court: What Happens When Your Business Goes to Court
Thursday 2 June | 11:00 - 11:45am
Online
How to Manage a Construction Dispute
Thursday 9 June | 11:00 - 11:45am
Online
Startup Financing: Venture Debt 101
Thursday 23 June | 11:00 - 11:45am
Online
Was this article helpful?
We appreciate your feedback – your submission has been successfully received.
About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.
By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.
If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.