Franchise Contracts

Franchisors’ relationships with their franchisees are framed by much paperwork. This paperwork includes franchise contracts, the most fundamental of the documents that undergird the franchisor-franchisee relationship. They are legally-binding documents that establish the terms by which the franchise will be operated and detail the franchisor’s and franchisee’s respective obligations.

 

The Contents of Franchise Contracts

 

Franchise contracts often comprise two key parts. The first part of the document is called the Purchase Agreement. The Purchase Agreement describes everything pertaining to the initial franchise transaction. This includes the franchise’s purchase price, and details about the inventory and other business equipment that the franchisee will receive. The nature of the inventory and business equipment will obviously depend on the type of business being franchised. Additional items that are likely to make their way into the Purchase Agreement include marketing support from the franchisor, help selecting the location of the franchise and the training that the franchisee will need to bring him or her up to speed on the operation of the franchise.

In addition to Purchase Agreements, franchise contracts also have Franchise Agreements. The Franchise Agreement is the part of the document that lays out the terms of the franchisor-franchisee relationship once the initial purchase transferring ownership rights has been concluded. It describes the respective obligations of the franchisor and the franchisee. Such obligations might include the regular services that the franchisor will extend to the franchisee or the expectation that the franchisee will maintain a certain standard of cleanliness and carry certain forms of insurance. The Franchise Agreement also describes the rights that the franchisor is extending to the franchisee, including copyrights, trademarks, and trade secrets. An absolutely crucial piece of information that every franchisor will want to include in the Franchise Agreement is money-related information: everything to do with the fees and royalties that the franchisee will pay on a regular basis once the franchise is up and running.

Franchise contracts are put together by franchisors with the help of franchise lawyers. The onus is upon the franchisors to determine the shape that the franchises will take. Thus, the documents often favor them by default. The role of the franchise lawyers is to ensure that the franchise contracts address every relevant aspect of franchising and are legally binding. Potential franchisees can challenge some of the terms presented in the franchise contracts before signing them. In this way, they can ensure that the terms and conditions given in the contracts are more favorable to them.