Franchise Contract Agreement: Everything You Need to Know
A franchise contract agreement is an agreement between two parties regarding a franchise. 3 min read
Franchise Contract Agreement
A franchise contract agreement is an agreement between two parties regarding a franchise. It is also known as a franchise business agreement, and it is an agreement between two primary parties. One party is the individual who will franchise out the business model, otherwise called a franchisor. The party that agrees to the franchise is the owner who will create his or her business model from the franchisor, otherwise called the franchisee. In a franchise arrangement, a franchise establishes the parameters and expectations that a franchisee must abide by.
In addition, the franchisee must use the brand name in accordance with the contract terms. A franchise can consist of a restaurant or any other business model, including retail outlets. Within the contract, the franchisee and franchisor must outline the expectations and behaviors within the confines of the contract.
The franchise agreement also allows all parties to agree to the contract terms regarding:
- Expertise and training if necessary
The contract terms will vary based on the franchisor’s discretion, and the franchisee must read all terms carefully before signing. The agreement itself lays out all conditions associated with the franchise system, including the following traits:
- Franchise fees
- Term lengths
- Developmental assistance
Also, the franchisor establishes rules that the franchisee must adhere to, but there are parts of the arrangement that also protect the franchisee. The agreement assists in helping them establish components of a business relationship. This would include:
- Quality control measures
- Fee information
A business person in search of new opportunities could minimize risks associated with beginning a new business by getting into a franchise. The best franchise agreements are ones that cover you in case anything goes awry. Such problems could come in the form of a dispute resolution. If you come across a franchise agreement, it may go by other names:
- Business for business franchising
- Agreement to franchise business
- Franchise contract
- Business franchise contract
Additional Franchise Requirements
Overall, it is a robust contract that ensures all parties know the terms and conditions of an agreement. Further, franchise contracts within the United States fall under federal and state laws, covering general contract principles such as mutual understating and formation. The Federal Trade Commission has dubbed it The Franchise Rule, covering various disclosures that must be made to a franchisee before the franchisee agrees to the contract. However, several states require The Franchise Rule, which requires proper notice and registration. This is called a Franchise Disclosure Document and the following states require this document:
- North Dakota
- Rhode Island
Other states follow similar mandates, which is why you should check your local state laws to find out if you would have to submit such a document. Franchise agreements may differ, but all describe a right, duty, or promise in some fashion. It is primarily an agreement between the franchisor and franchisee, but the franchisee also has leeway in hiring employees and becoming the sole manager/owner of the business.
Take note of the following covenants that are usually seen in franchise agreements:
- Grant of Franchise: This section allows a franchisee to know that a franchisee grants them a non-exclusive right to use any trademarks and service marks associated with the franchise system.
- Opening Date and/or Build-Out Rights: This part of the covenant deals with a franchisee territory and establishes a certain schedule in which the franchisee should find a suitable location for the business. In addition, the location must be approved by the franchisor and/or abide by terms established in the agreement.
- Required Purchases and Fees: Such a section discloses all fees involved and anywhere else throughout the franchise process.
- Advertising: The franchisee establishes any advertising mandates that the franchisee must meet.
- Renewal and Terms: Such a covenant details out the length of time that the agreements entail and the date that the agreement goes into effect. The contract should also contain a provision to renew if both parties agree to do so.
- Services Given by the Franchisor: Not all franchises will repeat any pre-opening and opening options offered to the franchisee in the disclosure documentation. Good drafting measures should mandate that such matters be repeated in the contract.
To learn more about a franchise contract agreement, you can post your job on UpCounsel’s website. UpCounsel’s attorneys have graduated from some of the best law schools in the country and will help you draft a sound contract if you are a franchise owner. Moreover, they will review any franchise contract if you are an entrepreneur looking to enter into a franchise agreement.