Every year, thousands of franchisees sue their franchisor. Why? Because if a strong foundation is not laid in advance, the franchisor may be liable for hundreds of thousands – even millions – of dollars.
So if you’ve decided that you’re going to expand your business through franchising, having a robust franchise agreement is crucial. This contract lays the groundwork for the relationship between the franchisor and franchisee, detailing each party’s rights, obligations, and expectations. At Trembly Law, we believe in empowering our clients with the knowledge to secure their business futures. Here are essential elements to include in your franchise agreement to help ensure it is as safeguarded as possible:
Define the Roles Clearly
Franchisor and Franchisee Responsibilities: Specify what support the franchisor will provide, including training, marketing, and operational guidance. Clearly outline the franchisee’s responsibilities, such as compliance with brand standards and reporting requirements.
Detailed Financial Provisions
Fees and Royalties: Include all fees that the franchisee must pay, both initial and ongoing. Detail the royalty payments and any marketing or service fees. Clarity in financial commitments can help prevent misunderstandings and disputes.
Term of Agreement and Renewal Conditions
Duration and Renewal: Define the length of the franchise agreement and the terms under which it can be renewed. This ensures both parties understand the timeline for their business relationship.
Territorial Rights
Exclusive Territory: Granting an exclusive territory can be a major selling point for potential franchisees. Specify geographical boundaries within which the franchisee can operate exclusively. Include under what conditions, if any, you may modify these rights.
Standards and Operations
Brand Standards: Maintain the integrity of your brand by detailing the operational standards required. This includes store layout, service standards, and product quality, ensuring uniformity across all franchise locations.
Exit Strategies and Dispute Resolution
Termination Clauses: Outline the conditions under which the franchisor or franchisee can terminate the agreement. Include dispute resolution methods to address conflicts that might arise, favoring mediation or arbitration to avoid costly litigation.
Intellectual Property Usage
Trademark and Brand Use: Clearly define how the franchisee can use the franchisor’s trademarks, copyrights, and proprietary information. Protecting your brand is crucial to maintaining its value and reputation.
Implications of Failing to Meet Standards
Performance Benchmarks: Set clear performance benchmarks and consequences for failing to meet them. This can include additional training, temporary management takeover, or even termination of the franchise agreement.
Legal Compliance and Changes
Adaptability to Law Changes: Ensure the agreement reflects current laws and is adaptable to changes in regulations that could affect the franchise operation.
Regular Updates
Review and Adaptation: Regularly review and update the franchise agreement to reflect changes in the market, competitive landscape, and legal environment. This adaptability helps protect both parties and ensures the long-term success of the franchise.
Conclusion
An armored franchise agreement is your best defense against potential disputes and a cornerstone for successful expansion. At Trembly Law, we have years of experience in drafting detailed franchise agreements that protect your interests while fostering positive franchisor-franchisee relationships. Ensuring your agreement is comprehensive and clear can save you from future headaches and legal disputes.
Ready to create or review your franchise agreement? Contact Trembly Law Firm today, and let’s ensure your franchise foundation is as solid as it can be.
Arturo Arca, Esq.
Partner & Chair of Litigation Department
Arturo Arca joined Trembly Law Firm as a partner in 2018, bringing over a decade of experience in commercial and civil litigation. He represents corporate clients in consumer finance, employment, and business matters, including mergers and acquisitions and non-compete agreements. Arturo helps business owners proactively solidify their foundations and address potential issues with strategic guidance, minimizing liability and fostering growth. His passion for helping businesses thrive energizes him, ensuring his clients have the peace of mind to expand confidently. Arturo’s experience and reputation have led him to share his knowledge through presentations, seminars, and publications, including contributions to Law 360.
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