A franchise agreement is a legally binding document that outlines the rights, responsibilities and operations the franchisor expects from the franchisee. The franchisor uses a franchise agreement so that the franchisee can use the business’s intellectual property (IP), such as branding, trademarks and advertising under agreed terms. A franchise agreement essentially outlines the working relationship between the franchisor and the franchisee.
It’s often the responsibility of the franchisee to ensure that a franchise agreement contains any pertinent information about the business. The following are several key parts of a franchise agreement:
Location of business or territory rights
A franchise agreement should outline a franchisee’s territory they conduct business. Franchisees should not be in close vicinity. Having more than one of the same franchise in an area can lead to competition.
Operations, training and ongoing support
The franchisee should discuss with the franchisor how operation is done in the business and what kind of support is provided. This may include how employees are trained and supplies acquired, for example. Some franchisors only support a business from launch or they could continue it to monitor operations and performance.
Initial and ongoing fees and insurance costs
The use of a franchise is never free. The franchisee may be required to pay initial fees to use the franchisor’s IP. The costs may be limited to first-time fees or periodically in ongoing fees or royalties.
Duration of agreement and renewal rights
The franchisee should also discuss how long the franchise agreement lasts. There may be additional information about the franchisee’s right to renew the agreement and continue business.
Termination and breaches
There could be disputes during the operation of a franchise. The franchisee may need to be aware of what their rights are to terminate or resolve a contract breach.
Running a franchise is a large responsibility for franchisees. Franchisees should reach out to Zarco Einhorn Salkowski, P.A. to get a free consultation before agreeing to the terms of a franchise agreement.