The franchise agreement is essentially a legal document between the franchisor and you (the franchisee). It is a legally binding agreement. It explains in detail what the franchisor expects of you as a franchisee when you run all facets of the business. There is no standard form of franchise agreement, as the terms, conditions and operating methods of different franchises vary greatly depending on the type of business. This agreement describes the franchisee`s territory (exclusive or not) and establishes a schedule according to which the franchisee must find a physical location, have the plans for the unit approved, expand it and open it. In this section, other matters such as computer equipment necessary for the operation of the Company and others may also be disclosed. It`s important to note that Goldman noted that many franchisees are personally responsible for paying royalties called personal collateral, which can make breaking an agreement an expensive and risky venture. Franchising is a consistent and lasting reproduction of a company`s brand promise, and an agreement must detail the many business decisions that go into creating a franchise system. This is a complex contract and, in most cases, a membership contract, that is, an agreement that cannot be easily changed.
Like any other agreement, franchise agreements should be carefully reviewed before signing on the dotted line. Keep these points in mind when considering entering into a franchise agreement: These terms are enforced to ensure brand continuity and the franchisor`s standards are consistently met regardless of where in the United States or the world the franchise is located, he said. Each franchisee must sign the franchise agreement, and the franchisor will also sign the document. A word of warning, a franchise agreement is a binding legal document and you may want a franchise lawyer to review it on your behalf before signing it. While not all franchisors repeat the pre-opening and post-opening services they offer to the franchisee in the franchise`s disclosure materials, strong design principles require that these issues be repeated in the franchise agreement. However, inclusion in the franchise agreement removes the specter of litigation to insert into the contract rights that are not otherwise stated. A lawyer associated with the bfa can advise the franchisee on the practical effects of the franchise agreement and on anything that is problematic or atypical. This helps the franchisee understand the impact of the contract and gives the franchisor peace of mind that the franchisee will close the agreement with their eyes open. “Unless you`re the first or second person to franchise a particular business, the fees are pretty much set in stone,” Goldman said. While a franchisee typically finds and develops their own website, the franchisor can set approval and rejection rights at the site location. The franchisor must also include in the franchise agreement that it can approve the website to ensure that it meets the brand`s standards before opening.
“Every franchisor is slightly different because every brand wants something different from their franchisee,” Goldman said. “Franchise agreements are the bible of the franchise industry — they are the most important agreements to govern the relationship between franchisees and franchisors,” said Evan Goldman, a partner at New Jersey-based law firm A.Y. Strauss and president of the firm`s franchise and hospitality practice group. [Read related article: Ultimate Guide to Corporate Franchising] The franchise agreement shall also specify the extent of the services to be provided by the central management, both at the time of establishment of the franchise and on a continuous basis. .