The document outlines 10 key provisions that are generally covered in a franchise agreement: 1) Training and support provided by the franchisor, 2) The assigned territory for the franchisee, 3) The duration of the agreement, 4) Franchise fees and total anticipated investment, 5) Use of trademarks, patents and signage, 6) Royalties and other fees paid to the franchisor, 7) Advertising requirements and fees, 8) Operating protocols for franchisees, 9) Renewal rights and termination policies, and 10) The franchisee's rights to resell the franchise.
2. The Franchise Agreement is the legal document that
governs the franchisee/franchisor relationship. There is
no standard format for a Franchise Agreement
because the terms and conditions and operations
vary from franchise to franchise and industry to
industry. In general, Franchise Agreements cover the
following main provisions:
3. 1. Training and/or ongoing support provided by the franchisor.
Each franchisor has its own training program for
franchisees and their staff, which can include training
done at the franchisee's location or at the corporate
headquarters or a combination. Most franchisors offer
ongoing support including administrative and
technical support.
4. 2: Assigned territory
Your Franchise Agreement will designate the territory
in which you will operate and whether or not you
have exclusivity rights.
5. 3. Duration of the Franchise Agreement
This provision states the length of the agreement.
6. 4. Franchise fee and total anticipated investment.
Franchisees are required to pay an initial franchise fee
that grants them the right to use the franchisor's
trademark and operating system.
7. 5. Trademark, patent, and signage use.
This provision covers how a franchisee can use the
franchisor's trademark, patent and signage.
8. 6. Royalties and other fees you are expected to pay.
Most franchisors require franchisees to pay an
ongoing royalty, usually a percentage of total sales,
typically on a monthly basis.
9. 7. Advertising.
The franchisor will reveal its advertising commitment
and what fees franchisees are required to pay
towards those costs.
11. 9. Renewal rights and franchisee termination/cancellation policies.
These provisions deal with how the franchise can be
renewed or terminated. Some franchisors have an
Arbitration Clause in the Franchise Agreement, which
means that if legal action on either side is
warranted, an arbitrator will review the case instead
of going to court.
12. 10. Resale rights.
Some franchisors allow franchisees to sell their
franchises for whatever reason. Many, however, write
in buy back or right of first refusal clauses, which allow
the franchisor to buy back the franchise at a rate
determined by them or to match any potential buyer's
offer who has expressed interest in buying your
franchise.
