A franchise agreement is a contract that governs a franchise relationship. These agreements are entered into by the franchisor, the entity that owns the business model, and the franchisee, the individual or entity that will run a location of the business. While the terms of each contract are unique to the particular deal, most include similar provisions.
Most franchise agreements will include provisions describing where the franchise will operate and whether that territory is exclusive. The agreement will also detail how long the franchise relationship will last.
These contracts will most likely include terms regarding franchise fees and royalties the franchisee will have to pay the franchisor. The agreements will also usually contain provisions relating to how the franchise is to be run on a day to day basis, including details as to what training is to be provided by the franchisor.
Terms relating to intellectual property owned by the franchisor are very important in franchise situations. Franchise agreements include provisions instructing how patents, trademarks and copyrights can be used by the franchisee. Advertising terms are also usually included in these contracts as it is likely that the franchisee will have to contribute toward advertising costs.
Termination and renewal terms are also essential parts of a franchise agreement. These detail how the franchise relationship can be ended before the natural expiration and how the relationship can be revived if the parties so choose. It is also common to find terms relating to disputes that may arise between the franchisor and franchisee and how these disputes are to be resolved. This is where alternative dispute resolution and choice of law clauses may be utilized. Terms relating to the resale of the franchise might also be present, as many franchisee’s have this option, although there may be a right of first refusal clause accompanying it. This would provide the franchisor with the option of buying back the franchise before anyone else.
Franchise agreements determine all of the details of the franchise relationship and therefore must be clear and understood by all parties. They can often be complex and it is therefore of the utmost importance to consult with a business law attorney who has experience with franchise law to advise you and negotiate with the franchisor.