A franchise agreement is a contract between a franchisee and a franchisor that enables the franchisee to carry on its business using the franchisor’s intellectual property and systems. Essentially, it specifies the rights and responsibilities of each party to the franchise relationship, as well as the commercial details. Typically, these agreements last for a term of five to ten years with an option to renew. However, a franchise agreement can also be ‘perpetual’, where it is ongoing and includes automatic renewals within the agreement. This article will provide a breakdown of perpetual franchise agreements.
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What is a Perpetual Franchise Agreement?
A perpetual franchise agreement is an agreement that generally does not specify an ‘end’ or ‘termination’ date. Often, it will have automatic renewal provisions that do not require the parties to provide any further notice or enter into any contract for the franchise agreement to continue.
While all franchise agreements involve a significant amount of commitment, a perpetual franchise agreement requires an even greater level of commitment. Given this, it would be helpful to question whether or not this type of agreement has any advantages to you and whether or not it is worth taking on such a long-term commitment.
What is the Franchising Code?
It is important to note that the Franchising Code of Conduct (Franchising Code) will still apply to your perpetual franchise agreement in every respect. If a dispute arises or there is a breach, both parties will still be required to comply with the Franchising Code in dealing with disputes and breaches. Given this, your perpetual franchise agreement could end per the provisions of the Franchising Code.
Continue reading this article below the formWhat is Due Diligence?
As always, you should conduct your due diligence before entering into any contractual agreement. This would involve having a lawyer review your franchise agreement and its ancillary documents to ensure you are fully aware of the terms of your franchise agreement that will essentially continue ‘forever’. It may be helpful to consider any practical terms you would like to incorporate within the agreement to accommodate its perpetual nature.
Further to obtaining legal advice, you should also ensure you obtain business and accounting advice.
Key Takeaways
A perpetual franchise agreement generally does not specify an ‘end’ or ‘termination’ date. While all franchise agreements involve a significant amount of commitment, a perpetual franchise agreement requires an even greater level of commitment because of its enduring nature. As such, before taking on this ongoing commitment, you should have your franchise agreement reviewed by a lawyer.
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