What should a Franchise Agreement contain?

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Table of Contents

• What should a potential franchisee look for?
• What is a Franchise Agreement?
• Typical Provisions in a Franchise Agreement
• Common Clauses in a Franchise Agreement
• Conclusion

Each franchise agreement is different, and there is no clear answer on what each franchise agreement should contain. Prior to entering any franchise arrangement, you should request a franchise lawyer review your contract thoroughly, as well as the Franchise Disclosure Document. LegalVision has a dedicated team of experienced franchise lawyers who can assist you.

What should a potential franchisee look for?

There are a number of key steps a potential franchisee should take before entering a franchise arrangement. These include:

• Determining what training the franchisee will receive from the franchisor, including costs involved and the type of training that will occur, such as accounting, medical, product and service delivery and marketing;
• Determining the level of promotion the franchise will receive from the head franchisor, such as marketing costs and exposure;
• Considering the level of work required to maintain a franchise and meet the expectations of management;
• Recognising that if the franchise business is in a shopping complex, the franchisor will be in a tenant-landlord relationship with the shopping complex owner. Our franchise leasing solicitors can assist you with reviewing your commercial lease;
• Treating the franchise as a five-year operation rather than a short-term investment scheme; and
• Considering that any public backlash against the franchise brand could adversely affect the business of a franchisee.

What is a Franchise Agreement?

A franchise agreement governs the relationship between the franchisor and the franchisee. The agreement will cover a number of important key aspects including the nature and extent of the rights granted by the franchisor to the franchisee including the formal granting of rights to use the franchisor’s intellectual property and business system know-how.

The franchise agreement will also specify the extent of the services to be provided by head office management, both in establishing the franchise and on a continuing basis. This includes the supply of training and marketing. The franchisee is likely to comply with numerous operating, accounting and administrative tasks, generally set out in a Franchise Operations Manual.

Typical Provisions in a Franchise Agreement

There are a number of standard provisions set out in a franchising agreement. These provisions will vary from franchise to franchise, and even franchisee to franchisee. They include:

• The procedure to be adopted in the event that the franchisor wishes to sell the business;
• The procedure to resolve disputes;
• A provision for the termination of the agreement in the event of default by the franchisee.

Common Clauses in a Franchise Agreement

The following clauses can often be found in franchising agreements (remember this list is not exhaustive, and you should consult with a franchising lawyer for your particular circumstances!):

• Date
• Parties
• Grant of franchise and licence
• Term and renewal
• Franchisor’s obligations
• Franchisee’s obligations
• Payments to franchisor
• Termination of franchise
• Assignment, transfer and sale
• Power of Attorney
• Relationship and Indemnification
• Guarantee of obligations of corporate franchisee by principal shareholders
• Execution
• Schedules

Conclusion

LegalVision can assist you with any questions you may have about reviewing and drafting a franchise agreement. LegalVision has a team of excellent franchising lawyers who can assist you in drafting and reviewing franchise agreements and disclosure documents. Please call our office on 1300 544 755 and our Client Care team will happily provide you with an obligation-free consultation and a fixed-fee quote.