The Franchise Agreement

The franchise Agreement sets out the obligations of both the franchisor and franchisee. It is an important document in that it regulates the relationship between the parties and therefore it should not be taken lightly.

The essence of a franchise agreement is to protect the franchisor’s intellectual property rights, good will, standards, get up. Look and feel which in turn protects all the other franchisees as well. Where there are numerous franchisees, franchise agreements are standardized by the franchisor so as to ensure that they are uniform across the business. Notwithstanding this the agreements can be amended if there are any compelling reasons that require amendments. It is always a good idea to speak to other franchisees about their franchise agreements with the franchisor together with any issues that they can identify in terms of the products/ services and their experience of dealing with the franchisor.

It is common practice for lawyers that advise on franchise agreements to prepare a report highlighting your rights, obligations, royalty amounts, i.e. a fee based as a percentage of the franchisee’s turnover or margin on product/ service in addition to an initial franchisee fee (outlay fee), duration, right to renew, termination etc. There are also points that may require clarification from the franchisor- and it is a good opportunity to get them clarified at an early stage. Most franchisors do not allow the main body of the franchise agreement to be changed. Instead they prefer that any and all amendments be dealt with by way of a side letter or a rider attached to the franchise agreement, which for all intents and purposes is fine.

Here at Lawdit we specialize in franchising matters and have advised both the franchisor and franchisee on many occasions relating to franchises from Dominos Pizza, Metro Rod, O’Briens Sandwich Shops, Subway etc.

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