The Franchise Agreement

admin — Tue, 26 Jan 2010 15:27:37 +0000

The principal document that sets forth the binding rights and obligations of
each party to the franchise relationship is known as the franchise agreement.
The franchise agreement contains the various provisions binding on the parties
for the life of their relationship and therefore must maintain a delicate
balance of power. On one hand, the franchisor must maintain enough control
in the franchise agreement to enforce uniformity and consistency throughout
the system, yet at the same time be flexible enough to anticipate changes in
the marketplace and modifications to the franchise system and to meet the
special considerations or demands resulting from the franchisee’s local market
conditions.
The franchise agreement can and should reflect the business philosophy
of the franchisor and set the tenor of the relationship. A well-drafted franchise
agreement will reflect the culmination of literally thousands of business
decisions and hundreds of hours of strategic planning, market research,
and customer testing. The length, term, and complexity of the franchise
agreement will (and should) vary from franchisor to franchisor and from industry
to industry. Many start-up franchisors make the critical mistake of
‘‘borrowing’’ terms from a competitor’s franchise agreement. Such a practice
can be detrimental to the franchisor and the franchisee because the agreement
will not accurately reflect the actual dynamics and financial realities of
the relationship.

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The Franchise Agreement