The Franchise Agreement 

If all has gone well to this point, you’ll be getting ready to start signing papers. The single most important document you’ll encounter is the franchise agreement. This is the contract that establishes your rights and responsibilities throughout the term of the agreement. It sets out costs, fees, obligations, and many other essential items. In other words, this is a document you need to read carefully, not skim over breakfast. 

  The Code of Ethics (Again) 

Yes, it’s the European Code of Ethics again, and it has plenty to say about franchise agreements. That’s actually a good thing: you want to make sure that the document you sign is ethical, legal, and treats both you and the franchisor fairly. These are the ethics relating to the franchise agreement: 

·  The franchise agreement must be legal according to national law in addition to complying with the code of ethics

·  The franchise agreement should protect the franchisor’s rights to the company. If you speak a different language, the franchisor must have the agreement translated.

·  The franchise agreement must clearly set out all the rights and responsibilities of both the franchisor and the franchisee (ie, after this, there should be no surprises).

·  At a bare minimum, the franchise agreement must include:

                        -the franchisor’s rights

                        -the franchisee’s rights

                        -the goods and services provided to the franchisee

                        -the franchisor’s obligations

                        -the franchisee’s obligations

                        -the terms of payment

-the length of the agreement, which must be long enough to give the franchisee a chance to regain the imitial investment

                        -the terms for renewal of the agreement

                        -the terms under which the franchisee can sell or transfer the franchise

                        -information about the franchisee’s rights to use logos, trademarks, etc.

                        -the franchisor’s right to change operating systems or methods

                        -provisions for terminating the agreement

                        -details about surrendering the franchisor’s property in the event of the                                           agreement’s termination 

The first thing you should do is making sure that all of these items are contained in the franchise agreement. If they aren’t, or if you’re unsure, you should immediately contact either the franchisor or an attorney who specializes in franchise law. 

The Fine Print: Understanding the Franchise Agreement 

When you look at the franchise agreement, it may seem a mess of legal jargon and phrasing designed to make your head spin. There are a few key points, however, that require your immediate attention and concentration. The franchise agreement goes into great detail on every aspect of your contract, and you should read it carefully. These, however, are the places that require your utmost care and consideration:

 1. Fees

 The franchise agreement will outline ALL fees to be paid to the franchisor. These may include: 

·  the franchise fee (the initial purchase price)

·  monthly royalties or fees

·  the cost of products or services

·  an advertising charge

·  costs associated with training 

and any other costs that may arise in connection with the franchisor. Note that with monthly royalty fees, they are most often based on your gross sales. You’ll probably find a percentage of gross sales rather than an actual figure listed as your royalty obligation.

 Read this section carefully, because once you sign the agreement, you’re bound to it.

 2. Obligations

 The franchise agreement also outlines both your and the franchisor’s obligations in relation to the franchise. Again, these may include (but are not limited to): 

·  Information about fee schedules

·  Advertising responsibilities

·  Who purchases the franchise location

·  Details on terminating the agreement

·  Information about the training and ongoing support you can expect to receive

·  The franchisor’s specific expectations from you in running your business

·  The length of the agreement

·  When and how you can expect to receive products 

Next to the fees, this is the most important aspect of the franchise agreement. You must read and understand all of your obligations before signing, and it’s equally important you understand the franchisor’s obligations to you. 

3. Transfer of Business 

Not nearly as important as the first two sections, this part of the franchise agreement lays out the method and time frame for purchasing your franchise. It should tell you when the franchisor expects full payment of the franchise fee, how you must go about making this payment, any documents that need to be signed, and any other details regarding how you will take ownership of your franchise. 

Other Details 

You should never feel rushed with the franchise agreement: the franchisor should provide you with a copy well in advance of expecting you to sign on (at least ten days). That gives you ample time to consider the agreement and go over it to your heart’s content. 

It’s in your best interests to have an attorney look over the franchise agreement. Failing that, be sure to read every sentence very carefully. Make sure it’s in compliance with contract law, the franchise Code of Ethics, and what the franchisor has promised you before. If you have any concerns, now is the time to voice them.