The franchise agreement between the franchisor and franchisee is extremely important as it determines the rights and obligations of both parties once the franchise is up and running.
Franchisees are advised by the industry to get legal advice to ensure that the agreement is workable and it must clearly detail a number of issues so that the business can run effectively and any difficulties can be quickly resolved one way or the other.
The main areas that an agreement should definitely cover include the length of time the franchise will operate for until a renewal is required, the region the franchise covers and if it has exclusive rights to sell the product or service in it, the fees involved and the specifics of what the franchisor will provide in terms of training, stock, advertising and support services.
However, it should also set out any restrictions for franchisees, such as having to buy a specified amount of certain items from the franchiser.
Another important aspect to cover is the process involved if the franchisee wants to sell or transfer the business during the term of the agreement, so that franchisees know what they can and cannot do with the franchise's business methods and products.
Franchisees need to look out for a list of reasons that the franchisor will state as grounds for wanting to terminate the agreement in order to put rules and standards in place to prevent such things occurring.
In addition, both parties must ensure that measures are included in the agreement which protect the franchiser's intellectual property rights so that no other companies in the area can become established using a very similar or the same trade name, products and business methods.
There should be safeguards for things such as trade name, trade marks, confidential information and know-how and copyright.
This will protect the reputation of the franchiser and will also help franchisees, who in many cases will choose a franchise because of its high profile, success and strong brand image and will therefore want this image to stay intact in their area.
If all of these issues are included in the agreement, franchisees can feel confident that everything is in place for their business to run properly and they know exactly what is expected of them and the franchisor.
Even if there are changes to the franchisor firm, a good franchise agreement will mean that the rights of the franchisee will be minimally affected if at all.