Checklist for Franchise Agreement

The franchisee will certainly have to pay an upfront fee or franchise fee as well as an ongoing fee, sometimes referred to as royalties. Potential franchisees should plan not only for upfront fees and ongoing royalties, but also for any other costs and expenses necessary to establish the franchise. This section specifies the trademarks that the franchisee has the right and obligation to use. The use of the franchise marks is licensed to the franchisee. Except under the franchise agreement, the franchisee does not have the right to use the franchisor`s trademarks. The franchise agreement also confirms that the franchisee does not acquire any rights in the marks and that the customers or legal rights arising from the franchisee`s use of the marks will benefit the franchisor. The franchisee should also carefully consider what happens to the brands if the franchisor goes bankrupt, as the franchisee wants to ensure their continued right to use the marks, even if the franchisor is no longer there. Since the franchise agreement describes the obligations of the franchisor and the obligations of the franchisee, it is extremely important to fully understand all its conditions so that both parties fully understand what is expected of them in relation to the business. It is very important to carefully consider the obligations of the franchisee and the consequences of non-compliance with these obligations. As a general rule, franchisees must successfully complete their training for the franchise to be granted. Other joint obligations require the franchisee to purchase products only from authorized suppliers.

A franchisee is also required to operate the franchise business in accordance with certain franchisor standards. It is common to find obligations that require the franchisee to have his business reviewed by the franchisor at all times. Although franchise agreements are fairly standardized – franchising, after all, is based on replicating a system, some franchisors are open to negotiations on elements of their franchise agreement. If a franchisor agrees to make minor changes to certain conditions, it is of paramount importance that they be set out in the agreement. If you become a franchisee, you have not purchased a business. On the contrary, you have obtained the right to operate a business in relation to a particular brand for a certain period of time. Therefore, particular attention should be paid to the duration of the franchise agreement. In addition, the franchise agreement shall specify whether there are renewal rights of the franchise undertaking and what conditions govern whether the renewal rights may be exercised. The franchise agreement certainly requires strict standards for the registration and reporting of the franchisee`s income and expenses to the franchisor. The franchisor needs this information to determine the state of its own franchise systems and to ensure that the franchisee transfers the appropriate ongoing amounts for the marketing fund and for royalties. The franchisor also has the right to review the franchisee`s financial reports and accounting to ensure that the information provided by the franchisee is accurate.

The franchise agreement includes a section on the franchisee`s contribution to the franchise marketing fund. The funds are typically used to fund local and larger marketing campaigns that can benefit the franchisee. The franchise agreement specifies in detail which funds and percentages must generally be paid monthly into the marketing fund. Without signing a franchise agreement, no party will ever become a franchisee. For this reason, it is important to know what to look for in the franchise agreement. Below, we`ll discuss some of the sections of a franchise agreement that you`re sure to come across. The right to operate a franchise is only permitted in a certain territory. In rare cases, this territory could be the world or even a country.

In other cases, the area includes only a specific geographic location and radius around it. A potential franchisee should also determine whether its territory is exclusive, which means that no other franchisee or company-owned business is allowed in the territory or whether the territory is non-exclusive. It is the written legal document that governs the relationship between the franchisor and the franchisee. It defines the conditions of the franchise obligations such as the rights and obligations of the parties, the costs and payments, the territory and the duration of the agreement. Franchisors take a lot of time and effort before approving a franchisee. Therefore, the franchisee`s ability to transfer the franchise is strictly controlled. The franchise should consider when and by what process it might be able to transfer its deductible if necessary. The franchise agreement also deals with situations in which the franchise can be transferred, for example due to the death of a franchisee. Ryan K.

Smith is an attorney and trademark representative at Feltmate Delibato Heagle LLP. He is a corporate and business lawyer with expertise in all types of intellectual property matters, including trademarks, copyrights, domain names and confidential information. Mr. Smith can be reached at (905) 287-2215 and . . .