The franchise agreement is the legal document that establishes the conditions of the franchisee and franchisor relationship. Although there is no standard format for a Franchise Agreement, the contract should state clearly the following to the franchisee:
- Royalties, fees and expected total investment. The agreement should specify a franchisee’s ongoing royalty and frequency.
- Territorial rights. This clause states the designated territory and whether or not the franchisor has a right to open up a corporate store or another franchise right next to your store.
- Franchisor commitments. The agreement should specify ongoing requirements by the franchisor for your royalty dollars such as ongoing training, frequency of support visits and its advertising commitments.
- Duration of agreement. The length of the efficacy of the agreement depends on the franchise and industry. It typically is between 10 and 20 years.
- Termination policy. The agreement should contain provisions with the specifics of franchise renewal and termination.
- Selling rights. Franchisors typically have the right of first refusal or to buy back a franchise. If there is such a clause, a franchisee wants to make sure that if a franchisor buys your franchise back that they are required to match the best offer of any buyer you might have.