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10 Things You Must Know About the Franchise Agreement

Written on June 11th, 2008 by Joseph in Franchise News.

If the UFOC or FDD can be regarded as the “Bible” of franchising, then the franchise agreement is definitely the Ten Commandments. It spells out what you can do and cannot do while starting a franchise. Some salient features of the franchise agreement are:

• It’s drawn by the franchisor and people who buy a franchise have little or no say on what will be in the agreement.
• A good franchise attorney should be employed by a franchisee to examine the document.
• You will have to read the FDD and visit the franchisor on the Discovery Day before you can get the franchise agreement.
• The franchise agreement must have the same language and matter that was there in the FDD.
• Both the parties can sue each other, if they think that the other has broken any provision of the agreement.

Now that you know the basic things about franchise agreement, let’s look at ten important sections:

1. Training/Ongoing Support: It will tell the franchisees what they can count as training and support when they go for this franchise business for sale offer. It will have all the details; the duration of the training period, where it will be taught and what will be taught. You will also know what facilities you will be provided with as on-going support.

2. Trademark and patent usage: If the franchisor is providing any trademarked and patented product/service, then that will be mentioned in this section. You will have to rightly use the said product/service so as to keep the brand image of the company intact. You cannot use the trademarked product/service in any other way.

3. The fees: This section will be on how much money you have to give as franchise fee, royalty fee and any other fees.

4. Protected territory: A very important section for you, as it will tell you whether your franchisor and fellow franchisees have the right to market the product/service in your area. Marketing, as per the new rules, also includes online marketing or marketing through other Medias. There will be a warning in the FDD, if the franchisor is not giving this provision in the franchise agreement.

5. Operations manual: It will tell you how you are supposed to run the unit on a day-to-day basis.

6. Advertisement: The advertising campaign the franchisor will maintain for promoting the brand and your contribution towards it.

7. Exit Policies: If you want to sale the franchise before the term of the franchise agreement is over, you have to do it according to the rules laid out in this section.

8. Agreement period: The term of the franchise agreement. Most franchise opportunities have ten-year term.

9. Renewal and cancellation: This section will put the guidelines on how you are going to renew the agreement. In case you want to get out of the franchise system, there may be some conditions that you have to follow even after getting out of the system. For example, you cannot open the same type of business for a certain period of time after getting out of the franchise.

10. Grievance Redresses: This section will outline how you will proceed in case you have some problem with the franchisor. There can be a rule of going to an arbitrator before going to court written in the franchise agreement.