A Typical Franchise Contract

Here are some of the terms found in a typical franchise contract:

• The parties to the agreement (the name, address and other details of the franchisor and the franchisee, and any other parties to the agreement)
• The business structure or format being licensed to the franchisee, which is usually referred to as the “System”. The System typically includes: trade names, trade-marks (e.g. logos and slogans), trade secrets, patents, copyright, designs, procedures, techniques, manuals and the products and/or services which are the subject of the franchise
• The length of the terms of the franchise and any renewals or options to renew the franchise at the end of the term
• The fees payable by the franchisee to the franchisor, some of which may be one-time fees (e.g., the initial franchise fee), and some of which may be ongoing fees (e.g., a royalty payment, which is generally a percentage of the franchisee’s gross sales)
• Territorial limitations on the franchise
• Any training and/or re-training requirements
• Obligations to abide by the franchisor’s System (and the consequences of failing to do so
• Obligations to modify the System at the request of the franchisor
• Obligations to introduce the franchisor’s new products and services, and any obligations to cease selling particular products and services
• Obligations to purchase products or services from the franchisor or from approved suppliers
• Obligations relating to the hours and days of operation of the franchise
• Obligations to advertise or promote the franchise locally or regionally, or to contribute to the franchisor’s advertising or promotional program
• Obligations to participate in special promotions (e.g., to redeem promotional coupons)
• Obligations regarding the maintenance of financial records, and any obligations to make these records available to the franchisor
• Obligations to insurance policies
• Restrictions on the sale of the franchise by the franchisee
• The methods by which a franchise may be terminated by the franchisor
• Continuing obligations on a franchisee after termination or expiration of the franchise agreement

Understanding the Franchise Contract

Understanding the type of contract you will have to sign in order to start a franchise is often a daunting task. However, it is the first and most important step to success. A franchising contract is entered into by you, who want to start a franchise, and the owner of the franchise. The contract will outline the conditions and nature of the relationship between yourself and the franchise owner. The owner of a franchise usually has most of the say in what goes into a franchise contract. This makes sense, since he is risking a lot by allowing you to put his good name on your business. Consequently, the contract will always be biased towards the owner. Another for strict conditions in a contract is to ensure uniformity from all those involved in his franchise, which is essential to the franchise’s success.Despite these guidelines, there is no real formula for what a franchise contract should look like. Franchises cover a wide range of industries and what works for one may not make sense for another. Opinions also differ as to what degree you, who are entering into the franchise, have a say in what goes into the contract. Usually factors such as location, exclusive territory and opening dates are negotiable, but not always. It’s important to take advantage of what freedom you have. Support your interests and don’t be afraid to speak up. However, it is a fine balance, as you don’t want to insult the owner of the franchise or appear to know what best for him. Remember, he is doing you a favour by letting you use his good name. Because of this, it can be said that the more well known franchises, such as McDonalds, will be much less flexible in their terms. Budding franchising are probably going to be more willing to take chances are they are more reliant on your interest.