Franchise Contract – Sample, Components & Negotiations

Franchise Agreement Contract Template

Franchise Contract Definition: A franchise contract is an agreement entered into, usually between the franchisor and the franchisee. This usually involves a willing franchisee who wants to own or buy into or sell an existing business or franchise.

However, this cannot happen without the franchisor offering a part of its business for investment and ownership.

A franchise agreement contract is usually legal and binding on both parties and valid for the duration of the contract. The relationship between both parties is governed by this contract.

Things You Need to Know About Franchise Contracts

Basic Contents of a Franchise Contract Sample

It is the terms of agreements entered into including the duration of ownership of the franchise, the renewal policy, Franchise Disclosure Document (FDD), the required amount of money needed for investment and other general workings of the franchise that make up the franchise contract sample for a restaurant, educational institute, etc. When the franchisee agrees to the deal, papers are signed which signifies an agreement to work together.

Who Sets the Franchise Contract Rules?

Contracts are usually binding on both parties. However, in most cases, the franchisor is the one making or dictating the terms of the contract, for instance, a Subway franchise contract. All of the conditions are written from the franchisor’s perspective as it believes it knows the business arena well and therefore knows what will or will not work for it.

The franchisee nevertheless has the freedom of choice to either enter into this contract or not to. If the franchisee is not comfortable with the terms of agreement set forth by the franchisor, he has the freedom of seeking a different franchisor with better conditions of ownership.

Who Can Help Out With Advice?

Because this is a legal document that is binding on the two parties, new franchisees may be hesitant especially when they cannot seem to clearly understand the contract document. However, you don’t need to be afraid.

To know if what is on offer by the franchisor will be of favorable to you the franchisee, simply seeks the help of a franchise attorney who will be your guide and knows what your needs are.

This will help you in making informed decisions before signing the franchise contract.

Franchise Contracts and Rigid Rules

Franchise contracts contain a generous dose of “must do” and “can’t do” directives meant for its franchisees. Because they know the exact steps to take to make their system work for you, the franchisees are mandated to follow these rules to the letter to ensure that the system works for them.

Another reason why these rigid rules are set is that the franchisor does not want its business underperforming under any franchisee, hence the mandatory rules.

Can a Franchise Contract Be Negotiated?

This is not possible, at least for the well-established franchise companies. The only window left for the franchisee is to walk out before committing him/herself to the contract. One might ask why this is so.

The non-negotiable nature of the franchise contract is due to the confidence the franchisor has in its system of the business. It is confident that its franchise is worth it and will be rewarding to the franchisee, hence, the contract is believed to have all the ingredients needed for successful ownership and profitability.

The only option left to the franchisor is a franchise attorney who will examine the legal implications of owning this franchise and giving sound advice in support or against the idea of buying a particular franchise. This critical information can be used to avoid signing certain franchise contracts believed to be unfriendly, and seeking better ones.

Negotiable Franchise Contracts

There are franchise contracts that make provisions for negotiation between the franchisor and the franchisee. These types of franchise contracts should be carefully assessed before signing the franchise contract because they might not be confident with the soundness of their system or in other words, they may have doubts as to the resilience of their business structure.

Jurisdictions of Franchise Contracts

Franchise contracts are guided by jurisdictional laws. The United State’s franchise regulatory body which is Federal Trade Commission requires that before the signing of the franchise contract, the franchise disclosure documents (FDD) are made available to franchisees for ten days to enable them to examine such documents and make their decisions after having gone through them.

After this period, the franchise contracts such as McDonald’s franchise contract are enforced at the state level, with different states having their unique franchise contract laws.

Franchise Contract Exit Strategy

After having owned this franchise for the specified number of years as agreed upon or specified by the franchise contract, there are exit strategies on how to exit this contract.

For some franchisors, independence on the sale of this franchise is given to its franchisees, for some, there is a right of first refusal agreement where the franchisor either agrees or disagrees to buy back the franchise from the franchisee before he/she sells to a third party as may be presented by the franchisor. Still, others have an outright buy-back clause in effect.

This is what a sample franchise contract agreement entails and it’s only when the franchise contract is signed that it takes effect and becomes binding on the franchisee. If he or she defaults in any part or section of the agreement, provisions are made by the franchisor to sanction the erring franchisee through means most effective to them.