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Explanatory Notes
Franchise Agreement
INTRODUCTION This Franchise Agreement is designed for use by the owner of a business, who wishes to expand by appointing a franchisee to carry on their own business using the name, assets and so on belonging to the franchisor. The franchisor’s business may perhaps be a type of restaurant or a particular type of service to the public, such as valeting cars. The franchisee is in effect carrying on the business just as the franchisor could do, but the franchisee is not an employee or agent or partner of the franchisor. There may be a trade name and other examples of intellectual property associated with the business, and the Agreement deals with these as well. The franchisee will pay an initial fee for the right to carry on the business and then there is provision for a regular service fee based on turnover payable each month. The franchise is for a fixed term as this gives both parties the certainty which a franchise from week to week would not provide. There are provisions relating to the possibility of renewal. The Agreement has a basic structure to it and so it will almost certainly require modification to suit the particular situation. For example, the service fee may need to be changed to suit the terms which apply to the business. It may be that a weekly service fee is appropriate or a fee based on each item sold by the franchisee or job completed. The intended parties to the Agreement will no doubt have meetings first to discuss the terms for the appointment. It is suggested that they reach some “Heads of Terms” first and that those are then transferred over to the Agreement. THE FORM OF THE AGREEMENT THE PARTIES The full names of the Franchisor and Franchisee should be given at the beginning. If there is more than one, then all names should be given in full. If either is a company, then its full company name and its registered office should be given along with its company registration number. CLAUSE 1 - DEFINITIONS The definitions should be completed where there are blanks and it may be necessary to add others. In particular: 1.1 The “Area” should be defined by reference to a geographical area, such as a county. Alternatively, it can be defined as being so many miles from a particular place e.g. a post office. A plan could be used and attached to the Agreement. 1.4 The “Commencement Date” is the date when the franchise is to start. It may be the same as the date when the Agreement is signed or it may be some future date. If it is a past date, then it will be necessary to alter the words under “Background” to say that franchise was made on a particular date and that the Agreement records the terms which already apply to it. CLAUSE 2 - GRANT OF THE RIGHTS The Agreement is drafted on the basis that the Franchisee will have the sole and exclusive right to operate the franchise in the Area. CLAUSE 3 - RENEWAL The parties may want to provide for the possibility of renewal of the Term just once, though this clause may be amended to provide for a fixed number of further renewals. It is important that clause 3 does not form part of any renewal otherwise the Agreement would in effect be perpetually renewable. CLAUSE 4 - FRANCHISOR’S OBLIGATIONS These are set out in Part 1 of the Schedule. They are fairly even handed, but others may be required. In particular, the Franchisee will want to ensure that the Franchisor supports the Franchisee so that the Franchisee maximises the profits. This is obviously also in the interest of the Franchisor, but it is best to make it clear.
CLAUSE 5 - FRANCHISEE’S OBLIGATIONS These are set out in Part 2 of the Schedule and all self-explanatory and others may, of course, be required to deal with the particular type of business. The Franchisor will want to ensure that the Franchisee carries on the franchise successfully and does not damage the good name and reputation of the main business. CLAUSE 6 – SALE OF THE FRANCHISE BUSINESS The Franchisee may want to sell the business to a buyer interested in taking the franchise over and so these clauses deal with this. The Franchisor is given an option to purchase instead. CLAUSES 7 AND 8 - TERMINATION The appointment will continue for the whole of the Term (and for any renewal period), but it may end earlier under clause 7. Clause 8 deals with the consequences of termination, either at the end of the Term or under clause 7. CLAUSES 9 TO 18 - MISCELLANEOUS These clauses are all self-explanatory and fairly standard in commercial agreements. Clause 14 is particularly important. INSURANCE The parties should ensure that they each have the appropriate insurance cover for the risks which they each face. There is no need to include any provisions about this.
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