How to Create a Franchise Agreement

A good franchise agreement is vital for both the franchisee and the franchisor. The terms of a perfect franchise agreement may differ for the franchisee and the franchisor but the core provisions remain the same. Since a franchise agreement contains a lot of legal attributes, it is advisable that you hire a franchise lawyer before finalizing a franchise agreement. Here are some tips than can help you write a franchise agreement.

Stating the general purpose

The first step to writing a good franchise agreement is to state the general purpose of the agreement and recognizing the parties associated with the contract. The entity receiving franchise rights is termed as the franchisee while the individual or entity that grants franchise rights is the franchisor. Make sure that you include each party’s legal address, name, email address and telephone number.

State clearly the franchise’s territory and if the rights granted are non-exclusive or exclusive. Generally, franchisees prefer big territories with exclusive rights while franchisors like small territories with non-exclusive rights.

Intellectual property rights

Clearly state the intellectual property rights that the franchisor is licensing. Intellectual property rights include signage, patent rights as well as the trademark. Patents and trademarks can be identified and described by their legal registration numbers. It is also recommended to include a diagram or drawing of the trademarks.

It is advisable to include in the franchise agreement the business methods and the operating standards the franchisee is expected to follow. This section is perhaps the most complex and may reach up to a dozen pages.

Training and support

Include in detail the initial and the ongoing training and support that the franchisor will provide to the employees and managers of the franchisee. Also, include publications, if any, that the franchisor will provide to the franchisee. Make sure that the training and support program continues till the franchise agreement expires.

Investment and royalties

Make sure that you state the initial fee that the franchisee has to pay and also the estimated total amount of investment that the franchisee has to make. This can include redecoration and signage. The franchise agreement should also include the ongoing monthly royalties that is a percentage of the franchise’s gross sales.

List the estimated franchise’s contribution towards advertising expenses and the franchisor’s obligation to advertise the franchise within the allocated territory.
To help in negotiations, you can hire a franchise lawyer.

Duration and renewal

In the franchise agreement clearly mention the duration of the contract. Majority of franchise agreements run for a period of five to twenty years. You should also mention about the renewal of the agreement, the termination of the agreement and the terms and conditions that will decide both renewal and termination. One of the most common causes of litigation is a badly drafted cancellation and renewal clause.

List all the resale rights granted by the franchisor to the franchisee. Some franchise agreements require the approval of franchisors before the franchise can be sold to a third party. Franchise agreements are legally intensive and it is advisable to take the help of a franchise lawyer to ensure a smooth transaction.

For more information on a trade-mark lawyer or franchise lawyer , contact Heydary Hamilton PC.