Understanding Franchise Agreements

Franchising is a widespread and accepted method of acquiring a business in America. There are franchise opportunities available for a nearly endless number of goods and services business models, ranging from general convenience stores to fast-food outlets to specialty clothing boutiques. For the savvy new businessman or woman, franchising can be a relatively easy ticket to business success since the work of establishing the business as a known entity has already been done for you.

When you acquire a franchise, part of the process is reviewing and signing a franchise agreement, which is a legally binding contract that establishes the terms of a franchisor-franchisee business relationship. Also known as a license agreement, it covers the areas described below:

The Rights of the Franchisee

By agreeing to conduct the business in a certain location and in accordance with the franchisor’s directions and methods, you will have certain rights extended to you. They include:

  • Use of any trade names, trademarks, patents, and copyrighted materials developed by the franchisor
  • The use of any formulae, processes, specifications, and manufacturing methods created by the franchisor, including secret recipes or methods
  • Exclusive territorial rights granted by the franchisor
  • Specially-priced supplies from designated suppliers

The Obligations of the Franchisee

When you agree to open a new franchise, the franchisor will impose certain obligations on you, such as:

  • Paying a franchise fee
  • Following the franchisor’s accounting system
  • Maintaining the necessary insurance coverage
  • Running the business on the approved premises
  • Keeping the premises in good condition and decorated as required by the franchisor
  • Using approved and provided point of sale advertising materials
  • Observing designated operating hours
  • Training all staff in the franchisor’s methods and ensuring that they wear approved attire while working
  • Buying supplies from the franchisor or their approved suppliers

The Obligations of the Franchisor

This section clarifies what the franchisor will do to assist you both before and after the new franchise opens its doors. This includes:

  • Providing training and ongoing support
  • Keeping the franchisee fully informed of product and procedure changes

Trade Restrictions

By agreeing to operate a franchise, you may be prohibited from actions or changes like those below:

  • Establishing and carrying on a business that is similar in scope
  • Running a comparable business in close proximity to another franchisee
  • Inducing staff to leave other franchisees
  • Continuing to use the franchisor’s trade names and secrets if the contract terminates

Termination Provisions

This sections outlines the conditions under which a franchise agreement may be terminated. They may include unfair business practices, inadequate and insufficient sales, failure to comply with applicable federal, state, and local laws, and transferring interest in the franchise without the franchisor’s consent.

Franchise termination in Florida is regulated by the Florida Franchise Act. Franchisors are prohibited from cancelling or discontinuing a franchise agreement if it is not clearly permitted by the agreement, undertaken for good cause or in good faith, or due to a material and substantial breach of the agreement.

Franchise agreements can be complex, and are usually structured to favor the franchisor. Before signing the agreement, you should have the document reviewed by an experienced corporate law attorney who can ensure that it represents a fair opportunity for you. Call the Trembly Law Firm at (305) 431-5678 today to schedule a consultation.