Here are the main provisions covered in most franchise agreements. It’s important to know what to expect before looking at contracts so that you can make an informed decision about whether to accept a franchisor’s terms. Franchise contracts are legally binding, so be sure that you can abide by the terms before signing.
- Franchise Territory and Boundaries
Each franchise location covers a certain area, which is spelled out by the franchise contract. Other franchisees cannot have their locations within a certain number of miles. This is done to make sure there isn’t too much competition in the area, which can limit sales potential and the success of the franchise location.
- Training and Support Provided By the Franchisor
It is standard for franchisors to train new franchisees and to give them ongoing support. Franchises are built around uniform business practices, and training will help new franchisees understand what is expected of them and learn the practices that have given the franchise company success.
- Length of the Franchise Agreement
The typical duration of a franchise agreement is usually 5 to 10 years. This part of the contract will also spell out the conditions under which the franchise can be sold to someone else, which can be stringent to make sure that any future franchisee is qualified to be an owner. Sometimes there will be a right of first refusal clause that allows the franchisor to buy back the franchise rather than have it sold to someone else.
- Franchise Costs and Fees
Besides the initial purchase fee, this part of the contract covers the costs involved in owning a franchise, including monthly fees, advertising costs, etc.
- Trademarks, Patents and Signs
The franchisor owns the trademark, various patents and the signage associated with the franchise. This part of the contract outlines the specific ways a franchisee is permitted to use those entities, as well as the ways they are not permitted to use them.
As a due diligence measure prospective franchisees should always ask about a franchisor’s position with regards to negotiation and never be afraid to request as much clarification as is necessary on any of the points in the franchise agreement. And these 5 provisions should be a helpful insight into franchise agreements and their impact on your life as a franchisee.
Written By Charlie Tolley, Franchise Recruitment Executive at HomeXperts