Reviewing a Franchise Agreement

Franchises provide a cost-effective way to scale businesses, but one should understand how they work and what’s involved. A franchise involves two leading players–the franchisor and the franchisee, and the franchise agreement governs their working relationship. The terms of a franchise agreement can sometimes be complicated and with hidden risks, and that’s why the potential franchisee should consider hiring an attorney to review the contract beforehand.

Hiring an attorney to review the franchise agreement is recommended regardless of the nature of the franchise is in question. A franchising lawyer is your only recourse when reviewing a franchise agreement.

Primary Features of Franchise Agreements

A franchise agreement gives prospective investors the right to use the franchisor’s trademark, know-how, systems, and the ability to run a similar but independent business unit for a fee– the franchise fee. The investor promises the franchisor to preserve the brand reputation, maintain quality standards, and follow the operations manual. The franchisor should provide ongoing training and support in the initial stages of establishing the franchise once the franchise fee is paid. The features of a franchise agreement can include the following:

Dispute resolution;
Royalties;
Length of the franchise term;
Duties, right, and obligations of the transacting parties

Advantages and Disadvantages of Franchise Agreements

Franchise agreements have their benefits and downsides like anything else.

Advantages of Franchise Agreements

Each party knows their positions since the duties and obligations are highlighted;
The terms of the franchise are clearly stated, eliminating uncertainties.

Disadvantages of Franchise Agreements

Franchise agreements favor the franchisor in most cases;
Termination is not easy;
The process of reviewing and correcting a franchise agreement can be time-consuming;
Unfair agreements can cause conflicts;

Franchise Agreement Reviewing vs. Termination

The terms of a franchise agreement can be so unfavorable that you want to terminate the franchise agreement. Typically a franchisee can get out of a franchise relationship in the following ways:

The franchise agreement is terminated upon the expiry of a franchise term; or
The franchise agreement can be terminated by transferring your business rights as a franchisee to a third party.
You can sue the franchisor for breach of contract.

You can consult a franchise lawyer for legal advice for reviewing your franchise agreement.