Reviewing the Terms of a Franchise Agreement

Buying a franchise gives you many advantages over opening your business alone.

For instance, you get to trade under a well-known brand name. You should also get full training and support so you can grow your business from day one.

Plus, if you are with a franchisor like Fantastic Services, you can have all your marketing done for you too. So all you will need to do every day is concentrate on delivering your services to the highest possible standard.

But how do you know what your rights and responsibilities will be as a franchisee?

This is covered by a document known as your franchise agreement. From understanding the key elements of a franchise agreement to what happens when a franchise agreement expires, you should find everything you need to know in this article.

How Does a Franchise Agreement Work?

A franchise agreement is a document that describes and defines the relationship between a franchisor and franchisee. An agreement:

• Is a legal contract
• Usually spans many years
• Must include details about your franchise fee and payment schedules
• Must detail how you can use your franchisor’s brand name and Intellectual Property

Typically, all aspects of how your relationship with your parent brand will work will be covered in this document.

The Importance of the Franchise Disclosure Document

How do you find out what is written in your new franchise agreement before you sign it? You ask to see the franchise disclosure document.

This document often includes a lot of data that you can use to judge the quality of the franchise opportunity you are considering. It also includes details of the franchise agreement.

Before you choose to buy a franchise, you should request a franchise disclosure document to find out:

1. About your franchisor – you should be able to see data about how profitable the franchise is.
2. Financial details – including a clear amount you will need as an initial investment, and your franchise fee.
3. What you get – including the Intellectual Property such as brand name, processes, and technology, your franchisor will be providing for you.
4. Your territory – almost every franchise agreement specifies the region in which a franchisee can operate in. If yours does not, you need to get clarification.
5. More information about the franchise agreement – the disclosure your potential franchisor makes should include more information about what is written in the franchise agreement.

Key Things to Understand About Your Franchise Agreement

1) What Everything Means Legally

Before you sign a franchise agreement, it is sensible to get some legal advice. Some words in a contract can have specific legal meanings that are not obvious to anyone who is not an expert in franchise law.

2) The Territory Your Franchise Will Cover

Ideally, you will want your franchise agreement to guarantee that you will have an exclusive area in which no other franchisees in the network can operate in. This could be a clearly defined region or set of postcodes.

3) What Your Franchisor Has to Provide

The wording of your franchise agreement is very important. Does the contract say your franchisor “may” provide something?

This means they may choose not to – or may not be able to. You need to understand what your franchisor “shall” provide. This is what they must provide according to the contract.

You also need to know what is an optional extra which you only may receive.

The Difference Between a Franchise Agreement and a Master Franchise Contract

There is a specific type of franchise agreement known as a master franchise contract.

For example, Fantastic Services has our Area Development level franchisees. These franchisees take ownership of larger geographic areas. For example, two of our most successful Area Development franchisees cover all of Bristol and Oxford.

Within those regions, those Area Development franchisees can create their own sub-franchises and are responsible for expanding the brand throughout their entire region.

How to Get Out of a Franchise Agreement in the UK

Most franchise agreements last for at least five years. Most last for more than ten. Many last for 25.

While the overwhelming majority of franchisees stick with the agreement to the end – many opting to renew to continue to expand their business – sometimes, circumstances change.

It is often possible to transfer your agreement to someone else who is interested in buying a franchise. But outright terminating an agreement early often means you lay yourself open to charges. These are usually to cover the investment your franchisor will have made in your business’s success.

On occasion, your franchisor may be able to terminate your agreement early. For instance, if you fail to pay your franchise fee.

Again, this should all be clearly set out in your franchise agreement. The details are always worth reviewing before you sign on the dotted line.

What Happens at the End of a Franchise Agreement?

Most franchise agreements contain renewal terms. These explain how the agreement can be renewed so that you can continue to happily operate your growing business just like you have for the past few years.

But at the end of a franchise agreement, if you do not renew, you will almost always lose access to your franchisor’s Intellectual Property, brand name, technology, and processes.

Once more, as with so many things in franchising, the specific details should be written into your franchise agreement.

Need to know more about how a franchise agreement with Fantastic Services works?

Let’s talk. There is no obligation—just handy information about how we help you succeed in your new business.

Fantastic Services has continued to accept new franchisees of all levels into our network and grow their businesses successfully even during the COVID-19 crisis.

Posted in Industry Insights