You likely see dozens or even hundreds of franchises every week just by driving through your city. Each of these businesses came about because someone paid for permission to become a franchisee. A complex document called a franchise agreement sets out the details of this arrangement. In this article, we will look at some little known facts about franchise agreements.
#1. Franchise Agreements Do Not Necessarily Address the Franchisee’s Needs.
Typically, the franchisor writes the agreement. The terms slant toward the franchisor instead of the franchisee. However, the Federal Trade Commission’s (FTC) Franchise Rule states that franchisees can negotiate terms. The franchise seller is not required to negotiate, however.
#2. These Agreements Often Contain Hidden Costs and Fees.
You would expect a franchise agreement to spell out your upfront franchise fees. In addition, your franchise agreement may include language about other fees and costs:
- royalties, usually based on sales;
- advertising and promotional materials;
- training fees;
- breach of agreement fees;
- leases and inventory;
- licensing;
- equipment and signage;
- management, administration, and insurance.
Always have an experienced business lawyer review your franchise agreement before you sign it.
#3. The Franchisor Can Restrict Your Activities as Franchisee.
Some franchisors may limit where franchisees can buy their inventory. Also, the franchise agreement may govern the use of intellectual property, advertisements, promotional materials, and training manuals. Some companies even stop the person buying the franchise from joining business associations.
Always review your contract carefully before signing to avoid being surprised after the fact.
#4. A Franchise Agreement Has an Expiration Date
The franchisor-franchisee relationship spelled out in your contract typically does not go on forever. In fact, there likely will be a provision stating that the franchise ends in 10 or 20 years. This time frame can vary, and you might be able to negotiate a different deadline. Also, at the end of the current franchise agreement, you may be able to renew your relationship.
These Facts About Franchise Agreements Could Make a Difference
The success of your franchise may hinge on the contents of the contract between you and the franchise. Doesn’t it make sense, then, to have an attorney review your agreement before you sign it?
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.