A franchise agreement is specific about the terms of the relationship between the franchisor and franchisee. It must address the following aspects in order to bring transparency in their business relations.
o Use of trademarks. One of the main benefits a franchisee receives when purchasing a franchise is the use of well-known trademarks. Franchisee must ascertain his / her entitlement on the use of these trademarks, service marks or logos.
Also a franchisee needs to ascertain if the trademark has been in operation for a significant amount of time and is it well known?
Or are there any restrictions on its use by the franchisor?
o Location of the franchise. This agreement must describe the exclusive area or territory granted to the franchisee.
A franchisee must know his / her exclusive rights in a certain territory?
o Term of the franchise. This defines the tenure for which the agreement is valid. it must clearly delineate.
Entry and exit dates for the agreement
Does it accord the franchisee have the right to renew agreement?
Can the franchisor purchase the franchise before the agreement expires?
o Franchise fees and other payments. The agreement must make clear all fees payable by the franchisee and services or goods or both received by the franchise in exchange.
Therefore it needs to define.
initial fee and what the franchisee receives for that fee
royalty payment, what it is based on and when it is due
o Obligations and duties of the franchisor. The agreement must also capture in detail services to be provided by the franchisor, like :
– operations support
o Obligations and duties of the franchisee. This concern must enlist franchisee’s responsibilities for :
– participation in the business
requirements for keeping and submitting adequate records
o Restriction on goods and services offered. The agreement must make clear any restrictions placed on the franchise with regard to goods or services offered, including:
– required quality standards
– approved suppliers
– approved advertising
– hours of operation
o Renewal, termination and transfer of franchise agreement. The agreement must also address
– the rights and obligations of a franchisee upon termination
– description of transfer of the franchise agreement
– description of renewal of the franchise agreement