Important Elements of a Franchise Agreement

By on November 15, 2021

A franchise agreement in a legally binding contract that sets forth the relationship between the franchisee and franchisor and defines the obligations and rights of each party. At Mulcahy LLP, we provide exceptional quality and thorough representation for various types of franchising issues.

Federal law establishes the franchise relationship under the Franchise Rule, which is governed by the Federal Trade Commission (FTC). Per this Rule, the franchisor must provide the franchisee with a franchise disclosure document (FDD) no less than 14 days before the signing of the agreement. This FDD includes the franchise agreement.

The Franchise Rule establishes what is to be included in the franchise agreement and the FDD. Some states also impose additional responsibilities on the franchisor-franchisee relationship and how it is to be established.

Common Provisions of a Franchise Agreement

The format for a franchise agreement is not set-in stone because from one franchise and industry to the next the terms and conditions of the operations can vary. General speaking however, franchise agreements include some key provisions, including:

  • Assigned territory
  • Continual support and/or training provided by the franchisor
  • Obligations and standards incumbent upon the franchisor and franchisee
  • Length of the franchise agreement
  • Confirmation of licensing terms and intellectual property ownership
  • Total expected investment and franchisee fee
  • Expected royalties and other fees
  • Use of patent, trademark, and signage
  • Record keeping requirements and operating procedure
  • Advertising benefits and required fees
  • Franchisee cancellation/termination policies and renewal rights
  • Rights of the franchisor to inspect records, facilities, or other property for quality assurance and control purposes
  • Accommodations and requirements related to materials and supplies
  • Resale rights

Tailoring the Franchise Agreement

Franchise agreements should be customized to the specific franchise at hand and may include additional or fewer items. With the provisions mentioned above, it is important to review and negotiate the details of the proposed agreement.

The franchisor needs to protect its intellectual property, brand, and reputation. The franchisee should negotiate some of the provisions and elements of the franchise agreement in order to protect its position and investment and achieve the desired growth and success.

If you need strong and experienced representation for a franchising agreement or other matter, we are here to help. Call us today at 949.252.9377 or use our contact form to arrange a consultation with a franchise agreement lawyer from our team.

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