A guide to clauses in franchise agreements for franchisees

A guide to clauses in franchise agreements for franchisees

In the third blog in our series examining the clauses franchisees should see in their franchise agreement, we look at five more clauses and guide you through what they mean.

Why do these clauses matter?

In a nutshell, these clauses matter because your franchise agreement will impact on everything to do with the business you are taking on as a franchisee.

The terms of the franchise agreement offered by the franchisor will govern the relationship between you and the franchisor going forward. Therefore, understanding what each clause means for you in practice and what your legal rights and obligations are will be is vital.

It may not be possible to go back and change the terms once you have signed your franchise agreement so you need to make sure they all work for you and you are happy with what is required of you. You also need to understand the level of assistance you can expect from the franchisor in running your business.

The other extremely important information in the franchise agreement is the financial obligations (and rewards) you can expect. You need to know this to set your budgets and ensure your business is a success.

Therefore, before you sign up to anything, it is crucial to get expert advice from a specialist franchise lawyer on your franchise agreement (and to make sure you fully understand everything).

Business Plan: This clause places an obligation on you to create a business plan each year, which you will review with the franchisor. Make sure the franchise agreement states that the targets and benchmarks set must be reasonable. If you do not meet these targets, then it is likely that a remedial plan will be put in place by the franchisor (which could ultimately lead to financial penalties).

Key Person: The “key person” will be the main manager of the business. This clause details their specific obligations under the franchise agreement (including what happens if they are unable to work in the business for any length of time).

Franchisor’s Initial Obligations This clause sets out the initial services the franchisor is obliged to provide to you once the initial fees are paid. For example: the initial training, provision of the operations manual, supplying you with a start-up kit and e-mail address.

Franchisor’s Continuing Obligations: This clause sets out the services the franchisor is obliged to provide to you on an on-going basis, for the duration of the franchise agreement. For example: on-going training and support, updates to the operations manual and any other relevant assistance provided.

Rights Granted: This clause will detail the scope of the rights granted to you by the franchisor in operating the franchised business in respect of use of trademarks and arrangements for other IP rights, including whether or not it is specific to a territory.