Franchise agreements

A franchise is sold on the strength of a concept that has worked somewhere else. The franchisee invests in premises, fit-out and stock on the basis of figures and promises made before signing; the franchisor lends its name to a business it does not run. Both take on a long commitment, and the agreement between them is usually drafted by one side and signed by the other with few changes. When an outlet underperforms, that document is the only thing either of them can point to.

A sound franchise agreement has to protect the network as a whole while leaving the franchisee a business that can actually make money. Drafting or reviewing one means working through:

• the rules on the information a franchisor must hand over before signing, and on what follows when it proves misleading;
• the rules on the know-how, operations manual and training that make up the franchise, and on keeping them current;
• the rules on the use of the network’s name, signs and store concept, during the agreement and after it;
• the rules on entry fees, ongoing royalties and contributions to a shared marketing fund;
• the rules on the territory granted to a franchisee, and on sales made online or into a neighbouring area;
• the rules on how far a franchisor may steer purchasing, suppliers and resale prices without restricting competition;
• the rules on the term of the agreement, its renewal, and the franchisee’s chance to recoup the investment made;
• the rules on what happens to the premises, stock and customer files when a franchisee leaves the network.

Our lawyers can support you with this.