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The Franchise Agreement

If you become a franchisee you will enter into a legal agreement with the franchisor, this is known as the franchise agreement.

The franchise agreement should achieve three fundamental objectives -

1) In the absence of specific franchise legislation, the franchise agreement needs to contractually bind the franchisor and the franchisee, accurately reflecting the terms agreed upon .

2) It should aim to protect the interests of the franchisor, including the intellectual property associated and the franchisee.

3) It should clearly set out the rules to be observed by the both parties.

As there is no specific legislation or regulation for franchising, the franchise agreement becomes all-important in determining the rights and obligations of the franchisor and franchisee, and the relationship between them.

For this reason it is sometimes said to form the ''engine room'' of the whole transaction. If difficulties should arise between the franchisor and the franchisee they will need to look to the contract to see what, if any, rights and obligations have been provided in the franchise agreement.

What to look for in a comprehensive franchise agreement:

• Training for the franchisee and his staff. It should set out what training your franchisor is going to provide, how intensive it is and whether it is ongoing.
• The supply goods and / or services – you should receive as a franchisee a list of suppliers that you will be required to do business with, for the supply of stock for your business.
• To be responsible for advertising, marketing and promotions – It should identify which party is responsible for promotion and whether a marketing fee is added to your monthly fees for this.
• To assist the franchisee to locate and acquire property and have it fitted out and converted into a franchised outlet. (Similar considerations apply with regard to the acquisition of vehicles, fitting them out, equipping the franchisee etc.); - is your franchisor providing this as stated in your agreement.
• To assist the franchisee to set up in business – your franchisor should be there to support you, the franchisee, right through the whole process.
• To improve, enhance and develop the business system – the franchisor should be proactive and be continually looking to develop their brand.
• To provide certain management and possibly accounting services – some franchisors do provide accounting services and this will be reflected in your monthly fees.

For further information, please view our Franchise agreement section.