A successful franchise depends on a strong contractual relationship between the franchisor and franchisee. Lasting success often begins with a well-drafted contract that outlines the obligations and expectations of both parties. In fact, due to the complex nature of the agreement and the length of the agreements, legal disputes are often difficult to avoid. Many issues may arise during the term of a franchise agreement. Commons issues include fee disputes, trademark infringement, fraud, exclusivity rights, or territorial encroachments.
One initial threshold of consideration is to determine the extent to which a franchisor is willing to negotiate. Agreements with strong and well-established franchisor companies are often non-negotiable. After all, they may already have a proven, successful system. A franchisor who is willing to negotiate substantive provisions should raise a red flag, and additional diligence may be recommended to double check the strength of the brand and the value of the potential franchise business.
Franchise agreements are almost always written by the franchisor, and due to this unilateral nature, are greatly favorable to franchisors. The agreement may contain many rules, including requirements that you have to comply with and a number of things you are forbidden from doing. One of the main goals of the franchise laws is to protect the franchise system as a whole, and it is important that you raise any unfair or unreasonable provisions to their attention and attempt to negotiate any necessary changes. With all of the requirements and restrictions set forth by the franchisor, it is similarly important to ask what they mean and why they are included.
It is also important to look at what happens should a dispute arise or if you want to terminate your relationship. Many franchising agreements are for long periods of time, from five years up to twenty years. Many potential franchisees may exit the business long before then, and it is important to figure out what will happen should you want to sell the business.
Every franchise agreement is different, but they often contain similar provisions. Some key provisions to take note of include but is not limited to fee payments, territorial restrictions, services or assistance provided by the franchisor, termination and renewal, transfer rights, or selections of the site.
Having a strong franchise agreement may be essential to save tons of money, time, and frustration later on. Potential franchisees should be careful and deliberate in selecting the right franchise and having a solid franchising agreement in place.