What are the Most Important Sections in the Franchise Agreement?

Franchise agreements vary between different franchises, but these seven areas should be addressed in every franchise agreement. 

 

Use of Trademarks

One of the main benefits you receive when purchasing a franchise is the use of well-known trademarks. This section lists the trademarks, service marks or logos the franchisee is entitled to use.

• Has the trademark been in operation for a significant amount of time and is it well known?

• Are there any restrictions on its use by the franchisor or franchisee?

 

Location of the Franchise

This section describes the exclusive area or territory granted to the franchisee.

• Do you have exclusive rights in a certain territory?

 

Term of the Franchise

In this section, the duration of the agreement is specified.

• How long does the agreement last?

• Can the franchisor purchase the franchise before the agreement expires?

• Do you have the right to renew the agreement?

 

Franchisee’s Fees and Other Payments 

In this section, all the mandatory fees are described:

• initial fee and what the franchisee receives for that fee

• royalty payment, what it is based on and when it is due

 

Obligations and Duties of the Franchisor

This section describes the franchisee’s responsibilities:

• requirements for training

• requirements for participation in the business

• requirements for keeping and submitting adequate records

 

Restriction on Goods and Services Offered

This section describes any restrictions placed on the goods or services offered, including:

• required quality standards

• approved suppliers

• approved advertising

• hours of operation

• pricing

 

Renewal, Termination and Transfer of Franchise Agreement

This section includes:

• the rights and obligations of a franchisee upon termination

• descriptions about the transfer of the franchise agreement

• descriptions about the renewal of the franchise agreement