Franchise agreements are agreements through which franchises grant the right to operate a business. This may concern a certain type of business, an already existing business or a new type of business. A franchise agreement is a contract between the franchisor and the franchisee or between the franchisor and an individual or corporation that buys the right to be a franchisee.
There are several crucial aspects of a Franchise agreement that need to be discovered before becoming involved in such an enterprise. This is vital both for aspiring businessmen who are planning to join a franchise and for existing companies who seek to expand their market presence.
What is a Franchise agreement?
A franchise agreement is a legal document that comprehensively covers all aspects of the relationships between the parties within this form of enterprise. For franchise owners, it guarantees that their new uncontrolled branches will not alter the brand image. For them, it also covers royalties that will be paid by the new venues for using the brand.
As for the aspiring entrepreneurs joining a franchise agreement, the document provides them with the rights to use the brand. In addition, the contract usually implies assistance with various aspects of the business from the original franchise company. Depending on the details of the case, it may provide help with recruiting or training employees or advertising.
There is no fixed form of this document in the United Kingdom. Instead, it is individually designed by the franchise company.
Parties involved in a Franchise agreement
In general, the document binds two parties: the franchisor and franchisee. The latter is the party joining the existing brand. In case you are considering opening a new venue of a popular franchise, you will be viewed as a franchisee in this relationships.
What is the franchisor? It is the company that provides the rights to use its brand and intellectual property to franchisees. Essentially, this is the party that is responsible for designing the document.
What are the benefits of using a Franchise agreement?
The franchise contract is considered to be mutually beneficial. For franchisors it provides an opportunity to grow their brand and generate extra income with minimum effort. It will not be necessary for the franchisor to manage and control all the venues: they will only help by providing assistance according to the agreement.
For franchisees, it is a way to launch a business without having to start from the ground up. They will benefit from the existing technologies, supply chains, advertising campaigns, and other achievements of the franchisor.
What clauses are included in the Franchise agreement?
The franchise agreement is typically a lengthy document that covers a range of topics, including the franchisee’s obligations, the franchisor’s obligations, the franchise fee, the royalties, the training and support that the franchisor will provide, and the intellectual property rights of the franchisor.
The most commonly included aspects covered in the agreement are:
- boundaries for rights of using the intellectual property of the franchisor by the franchisee;
- assistance provided by the franchisor;
- clauses related to the royalties paid by the franchisee;
- made–whole obligation;
- performance standards expected to be met by the franchisee;
- restrictive clauses that prevent the franchisee from re-entering the business with a new company;
- advertising and insurance clauses;
- duration of the agreement.
How can we help?
The team of Sterling Law is ready to provide legal assistance with franchise agreements to both sides of the contract. Our professional solicitors will be able to both review a contract offered by the franchisor and help a company draft a new agreement to establish relationships with franchisees. Our office is based in London, but you can also opt for an online consultation.