expert advice: Bianca Sevastos | Partner | Baybridge Lawyers
What are the key terms usually found in a Franchise Agreement?
Before entering into a Franchise Agreement, it is imperative that you understand all of your rights and obligations under the agreement. It is here that you will find all of the commercial terms relevant to your relationship as well as your legal obligations for the term of the franchise and beyond.
Term The “term” of the Franchise Agreement refers to length of time that the Franchisee is permitted to operate its business utilising the Franchisor’s name, brand and system. Most, but not all, Franchise Agreements also contain a renewal term which can be exercised at the Franchisee’s option. The critical point to understand here is that you are being granted a specific and defined term, there is no entitlement for the licence to continue in perpetuity.
Financial obligations The Franchise Agreement and Disclosure Document should set out all payments required to enter and exit the franchise, as 20 business franchise MAGAZINE
well as any recurring payments required over the life of the franchise. Such payments will likely include a royalty fee and a marketing fee, either expressed as a percentage of the Franchisee’s sales or as a flat fee, payable on a weekly or monthly basis. Additionally, there may be a requirement to upgrade the
premises at your cost, pay a renewal fee at the beginning of any renewal term of the franchise, and attend any ongoing training and annual conferences. All of these fees add up to your cost of doing business and need to be factored into your business forecasting at inception.
