What is a franchise agreement?

A franchise agreement is a binding contract between franchisee and franchisor that reflects the mutual obligations each owes to the other. The franchise agreement governs the entirety of the relationship between the franchisee and franchisor and contains all of the essential terms that set forth each party’s rights and responsibilities.  Both the franchisor and franchisee are required to sign the document before their formal franchise relationship begins.  The terms of a franchise agreement generally include:

  • Franchise Fees
  • Estimated Costs
  • Duration of the Contract
  • Location and/or Protected Territory
  • Training Programs
  • Franchisee Support Systems
  • Applicable Financing Programs
  • Obligations of Both Parties
  • Multi-Unit Rights
  • Trademark Rights
  • Advertising and Marketing
  • Equipment
  • Proprietary Systems and Products
  • And More

Franchisors should note that there is no standard form for franchise agreements because so many types of businesses are franchised.  The needs of a coin-operated laundry facility are drastically different from those of a fast food restaurant, so the terms and conditions of franchise agreements for those businesses must be drastically different as well.  As a result, it’s important for franchisors to make sure the terms of their franchise agreements are tailors to the specific needs of their business.

Franchisees should remember that franchise agreements are binding legal documents that are not to be taken lightly.  The amount of bargaining power you have depends on the specific franchise you are entering into, but you always have the right to negotiate with the franchisor if you are not happy with the terms offered.  If you still have questions about the franchise you’re buying into, make sure those questions are addressed before signing.

Regardless of whether you are selling a franchise or looking to buy, it is important that you hire an experienced franchise lawyer to look over your agreement and negotiate its terms before you make a formal agreement.

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