Following on from Part 1 we are going to discuss understanding section 2, your franchise or license agreement.
Franchise or License Agreement
1. The rights granted to the franchisee. The franchisee will be given the right as it applies to particular circumstances. As a franchisee there are certain rights that are extended to you.
Your rights include:
•Use of trademarks, trade names and patents of the franchisor.
•Use of the brand image and the design and décor of the premises developed by the franchisor.
•Use of the franchisor’s secret methods.
•Use of the franchisor’s copyright materials.
•Use of recipes, formulae, specifications and processes and methods of manufacture developed by the franchisor.
•Conducting the franchised business upon or from the agreed premises strictly in accordance with the franchisor’s methods and subject to the franchisor’s directions.
•Guidelines established by the franchisor regarding exclusive territorial rights.
•Rights to obtain suppliers from nominated suppliers at special prices.
2. The obligation undertaken by the franchisor. This item in the contract tells prospective franchisees what the franchisor will do for them both before and after start-up. That is why this item frequently refers to specific contractual obligations detailed in the franchise agreement, which is attached to the UFOC.
3. The obligations imposed upon the franchisee. Certain obligations are required of you by the franchisor. These obligations include:
•To carry on the business franchised and no other business upon the approved and nominated premises.
•To observe certain minimum operating hours.
•To pay a franchise fee.
•To follow the accounting system laid down by the franchisor.
•Not to advertise without prior approval of the advertisements by the franchisor.
•To use and display such point of sale advertising materials as the franchisor stipulates.
•To maintain the premises in good, clean and sanitary condition and to redecorate when required to do so by the franchisor.
•To maintain the widest possible insurance coverage.
•To permit the franchisor’s staff to enter the premises to inspect and see if the franchisor’s standards are being maintained.
•To purchase goods or products from the franchisor or his designated suppliers.
•To train your staff in the franchisor’s methods to ensure that they are neatly and appropriately clothed.
•Not to assign the franchise contract without the franchisor’s consent.
4. Trade restrictions. The restrictions imposed upon a franchisee may prohibit him or her from carrying on a similar business except under franchise from the franchisor, taking staff away from other franchisees, carrying on a similar business in close proximity to other franchised businesses within that chain, and continuing, after termination of the franchise contract, to use any of the franchisor’s trade names, secrets, and so forth.
5. Assignment/death of the franchisee. The franchisee should ensure that in the event of death his/her personal representative or dependent will be able to keep the business going until one of them can qualify as a franchisee, and that arrangements can be made to keep the business going until a suitable assignee can be found at a proper price.
6. Termination provisions. The termination of a franchise is an event heavily regulated by the franchise laws of 17 states. Franchise relationship laws in many states specify the conditions under which a franchisor may terminate or refuse to renew the franchise, imposing a standard of “good cause,” “reasonable cause” or “just cause” as defined by those laws. Minimum advance notice usually has an opportunity to cure the default and avoid terminations; notice ranges from five days to 90 days. Many states also specify circumstances under which the standard notice and cure requirements need not be met.
In view of the close working relationship that must exist between the franchisee and franchisor all provisions must be stated clearly in the contract. In this transaction, no small print should exist. Make sure, if possible, the franchise contract contains provisions that are favorable for both you and the franchisor.
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