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Ten key provisions of franchise agreements

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  • You have to be very careful of those arbitration clauses! So many franchisors write their contracts in such a tricky way that they leave everything to "the franchisor's discretion" meaning they can change their mind about basically anything and then force you to pay for an expensive arbitration if you disagree.
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Ten key provisions of franchise agreements

  1. 1. Ten keyprovisions of FranchiseAgreements
  2. 2. The Franchise Agreement is the legal document thatgoverns 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. 3. 1. Training and/or ongoing support provided by the franchisor.Each franchisor has its own training program forfranchisees and their staff, which can include trainingdone at the franchisees location or at the corporateheadquarters or a combination. Most franchisors offerongoing support including administrative andtechnical support.
  4. 4. 2: Assigned territoryYour Franchise Agreement will designate the territoryin which you will operate and whether or not youhave exclusivity rights.
  5. 5. 3. Duration of the Franchise AgreementThis provision states the length of the agreement.
  6. 6. 4. Franchise fee and total anticipated investment.Franchisees are required to pay an initial franchise feethat grants them the right to use the franchisorstrademark and operating system.
  7. 7. 5. Trademark, patent, and signage use.This provision covers how a franchisee can use thefranchisors trademark, patent and signage.
  8. 8. 6. Royalties and other fees you are expected to pay. Most franchisors require franchisees to pay anongoing royalty, usually a percentage of total sales,typically on a monthly basis.
  9. 9. 7. Advertising.The franchisor will reveal its advertising commitmentand what fees franchisees are required to paytowards those costs.
  10. 10. 8. Operating protocol.This section details how franchisees run their outlets.
  11. 11. 9. Renewal rights and franchisee termination/cancellation policies.These provisions deal with how the franchise can berenewed or terminated. Some franchisors have anArbitration Clause in the Franchise Agreement, whichmeans that if legal action on either side iswarranted, an arbitrator will review the case insteadof going to court.
  12. 12. 10. Resale rights.Some franchisors allow franchisees to sell theirfranchises for whatever reason. Many, however, writein buy back or right of first refusal clauses, which allowthe franchisor to buy back the franchise at a ratedetermined by them or to match any potential buyersoffer who has expressed interest in buying yourfranchise.