What You Need to Know About Franchise Contracts

12 April 2017
 Categories: Law, Blog


When you are buying a franchise, one of the major aspects of the process is the franchise agreement or contract. This is the part where the law comes in. The franchise agreement will allow the franchisor to determine how the franchise will be operated and will ensure the goods and services that you (as the franchisee) sell meet certain operational and branding standards. Before you sign the franchise contract, it is important to understand what to expect because the agreement is usually legally binding. For this reason, here are a few things you need to know about franchise contracts.

Negotiating Terms of the Contract

Can you negotiate the terms of the franchise contract? The simple answer is that many franchisors are usually not open to contract negotiations. This is because the main aim of the franchisors in the contract is usually to protect the value of the franchise. Franchisees usually tend to call for negotiations when they find non-negotiable clauses in the contract and end up requesting for those clauses to be removed. However, it would be advisable for you to work with a franchise lawyer to guide you on parts of the contract that could or could not be beneficial to you.

Unfair Terms

While it may not be clear what is considered unfair in a franchise contract, there are some guidelines that may suggest unfairness in the franchise contract or agreement. Therefore, look for clauses in the contract that give power to the franchisor to terminate the contract without cause. Also, watch out for clauses that restrict you from taking any action against the franchisors. Other clauses that may be deemed unfair include those that require you to provide the franchisor with broad indemnities and those that give the franchisors the power to unilaterally vary the contract.

Renewal of Contracts

If you are extending or renewing the agreement, the franchisor should give you a copy of the disclosure document of the contract. This document should have been updated within a given period, which you can find out from a franchise lawyer because different jurisdictions may have their own laws concerning the period. In addition, this document has to be given to you within a certain number of days (which a franchise lawyer can tell you) prior to the extension of the agreement. If the franchisor fails to give you this document within the specified number of days, then the franchisor will be subject to a penalty.