Key Provisions in a Franchise Agreement

Unlike UFOCs which, according to FTC regulations, must contain 23 required items and be written in "plain English," Franchise Agreements vary considerably between franchisors, and are often filled with "legalese" and can be difficult to understand.

Nevertheless, it is imperative that you carefully read and review and be sure to understand the rights and obligations detailed in the Franchise Agreement before you sign it.  The Franchise Agreement is a binding legal agreement.

Again, … don't sign it until and unless you understand your rights and obligations!!!

Don't rely on the franchisor's representatives to tell you what it says. And by all means be sure that all promises and representations made to you are set out in writing in the Franchise Agreement or a negotiated Addendum.

Do not make assumptions about what the Franchise Agreement says; Read It and Understand It! If you don't understand what a provision means, be sure to get advice from an experienced franchise lawyer.

For many people, the review of the UFOC and the Franchise Agreement are tasks for which they need assistance from a team member.  Hire a franchise lawyer or accountant to assist you. You might also consider utilizing the Business Review services offered by Franchise Success Center (link to page within Products & Services).

However you accomplish this task, be sure to understand the rights and obligations of the parties as they are detailed and specified in the Franchise Agreement before you sign this legal agreement.

The Key Provisions:

Although Franchise Agreements are not uniform in form or language, there are a number of key provisions that are generally found in most agreements and that warrant your particularly close attention.

Remember, as to these and all provisions, it is what is contained in the Franchise Agreement, not oral promises or the UFOC, that governs the relationship between you and the franchisor.

Be sure your understandings - which are, afterall, what you used to make your decision - are borne out by the Franchise Agreement.

Look for and be sure to understand these key provisions:

1. The Term/Duration of the Franchise Agreement:  Your rights are not unlimited. For how long are you entitled to be a franchisee?

2. Transfer/Resale Rights: What restrictions are there on your ability to sell or transfer your rights? Does the franchisor have a right of first refusal?

3. Renewal Rights: What rights do you have to renew at the end of the initial term?

4. Default and Termination: How can you lose your rights in the franchisor's system? What are the procedures and what are the remedies?

5. Training and Ongoing Support:  What exactly is the franchisor promising to provide?

6. Assigned Territory/ Exclusive Rights:  Do you receive an assigned territory? Do you receive exclusive rights?  Can the franchisor open a company store near you? What happens if your exclusivity is violated? or not you have exclusivity rights.

7. Franchise Fee, Royalties, Advertising Funds and Other Required Fees and Costs:  What are you required to pay the franchisor or other parties?

8. Intellectual Property: What protected trademarks, service marks or trade names does the franchisor own? What rights do you receive to use the franchisor's logos, signage and other intellectual property?

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Franchise Success Center provides educational and broker services but is not qualified to advise in any part of the purchase of a franchise or business opportunity. This report in no way offers business advice. Investing in a franchise is a complicated and serious matter. You are urged to seek professional advice and to consult with a franchise attorney, an accountant, and/or other professionals before you make your decision.