Guide to Franchise Agreement
Franchise agreement is a document that contains all the provisions and rules regarding the franchise business you want to invest. Prior to signing the contract, you must make sure to review the contract and understand the agreement. There are a number of things you must look for in the franchise agreement.
First of all, you must determine what products you will be selling in the franchise agreement. You want to know whether you are permitted to sell the whole range of products or only a selection of products. The franchise agreement should offer some protection against competing products in the same brand if you are allowed to only sell selected products.
The contract must address concerning the termination of the franchise business. They must give you sufficient opportunities to address the deficiencies in your franchise business. If you are doing well, they must let you continue to perform in the trade area. The bottom line is that the franchisor must terminate you as long as the business is having an acceptable performance.
Another thing is that you must check for the early out provision in the contract. Many franchisees want to get out of the franchise business early when the outlook that their franchise business is not good. The advantage for including the early out provision is that you will still get paid royalties during the period of the relationship even though you close down the shop without fulfilling the term.
Usually, there is no option to negotiate the terms in the franchise agreement. Franchisees are put on the same program and have to sign the same contract. Usually, the terms in the agreement of a strong franchise brand can’t be negotiated. If the contract is negotiable, you should get an expert franchise lawyer to negotiate it.
If you have any question about a provision in the franchise agreement, you should request for the franchise company send you a letter of clarification. You must keep in mind that the franchise agreement is written for the benefits of the franchise company. You may feel that some terms are not fair but they have to do this to protect their franchise system including the brand, operating system, and franchise business.
The franchise agreement has a lot of rules that outline your responsibilities about the business operation. You should ask other franchisees or contact a lawyer from the franchise law firm if you need clarification on the must do rules in the contract. Besides the must do rules, there are also a lot of can’t do rules that list the things that you are not allowed to do during the business operation. Most of the can’t do rules are common sense that everyone franchisee should know. For example, you are not to use the franchise secrets for your own use except as part of the business. Other franchise rules are designed to protect the franchise system.
In conclusion, the franchise agreement is a complicated document so it is wise to hire a franchise lawyer to review the contract. The franchise lawyer can explain the terms to you so that you know whether it is the right decision to sign the contract.