For how long should a franchise continue under this agreement? What happens at the end of that period?
The period of the franchise will depend upon the circumstances: the nature of the business being franchised; the amount of investment required to set up the business and franchise; the likely period it will take to for the franchise to become profitable; the relative bargaining power of the franchisor and franchisee; and so on. Franchises are commonly granted for rolling periods of between 1 and 5+ years.
Whatever period you choose, this agreement defines a fairly standard renewal procedure.
First, the franchisee must send to the franchisor a written notice requesting renewal within some defined period (e.g. at least 30 days before the end of the current contract period). Next, unless there is a particular reason for ending the franchise, the franchisor must grant a new contract period - again by sending a written notice to the franchisee within some defined period. The suggested wording allows the franchisor to terminate if the franchisor has breached the terms of the franchise agreement or has refused to agree to variations of the franchise agreement.
What particular obligations concerning the conduct of the franchise are placed on the franchisee by this document?
Many different obligations are included.
Some of the more important ones being obligations to: meet agreed performance targets; market the franchise generally; conform to an operations manual; keep sufficient stocks and other resources to ensure that customer demand can be met; only use products / equipment / marketing collateral supplied by the franchisor; not operate outside a granted territory; not exceed defined maximum pricing (NB minimum pricing is usually illegal); comply with all applicable laws and regulations; respect the franchisor's trade marks; ensure staff are presentable and professional; train all staff appropriately; keep proper business records, and provide them to the franchisor on request; keep the franchisor informed of key changes in the business; inform the franchisor of improvements made to the business by the franchisee, and implement improvements made by the franchisor; provide information to other franchisees; pass relevant enquiries to the franchisor; and not entice away customers / employees from the franchisor.
The desired balance in the agreement as well as the nature of the business itself will largely determine which obligations you should retain, remove or add.
Is there a clause in this contract allowing the franchisor to increase the fees payable by the franchisee?
Yes. The franchisor may increase the fees on notice at certain times during the term (the drafting refers to annual fees, variable on any anniversary of the commencement of the agreement). Notice of some minimum period must be given, and increases may be capped (the drafting suggests by reference to the UK Retail Prices Index).
After the franchise agreement terminates, can the ex-franchisee be forced to pass enquiries to the franchisor?
The termination clause in this agreement includes such an obligation, but whether it will be useful in practice is another matter. In some cases a better approach will be for the franchisor to retain control of the relevant means of communication - email addresses and websites (via domain names), telephone numbers, even premises.
Our franchisees are typically newly-formed limited companies with few assets. How can this document protect us if such a franchisee fails to fulfil its obligations under the agreement?
The premium template includes an owner guarantee designed for these circumstances. Essentially, the owner or owners guarantees all of the obligations of the the relevant company. Specific covenants may also be extended to cover owners.
Can the franchisee sell the franchise to a third party?
Yes, subject to compliance with the sale of business clause included in this document. This procedure assumes that the franchisee has a right to sell, but that the franchisor can block sales in defined circumstances (e.g. problems with the proposed new franchisee, or breaches of the agreement by the existing franchisee).
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