Effective management of the franchise agreement

Whilst it is necessary to apply a contract according to the specific needs and characteristics of each franchise and also in accordance with the laws of a country, we now examine how a franchise agreement should be managed.

This is in compliance with the Code of Ethics issued by the World Franchise Council (WFC) in order to deliver value to both the franchisee and the franchisor.

First, we look at the need for recordals. After preparing the agreement, it is important to record upfront that the franchisee acknowledges that prior to signing the agreement, he/she first, has read the provisions of the agreement and fully understands it. Second, has been advised by the franchisor to obtain independent legal advice on the terms and conditions of the agreement.

Third, has not relied on statements or representations made by the franchisor, its employees or agents, other than those recorded in the agreement and the disclosure document.

This is important because franchisors pushing to get franchisees might paint a brighter picture than what is contained in both the agreement itself and the disclosure document. Forth, understands that none of the assistance rendered by the franchisor should be construed as a warranty for the successful conduct of the franchised business and finally understands that the success of the franchised business depends largely upon the abilities and efforts of the franchisee to successfully operate it.

These recordals protect the franchisor from possible accusations in future of any misrepresentation.

The second element of managing the franchise agreement is confidentiality, earlier discussed as the Non-Disclosure Agreement (NDA).

To protect the franchisor from “commercial espionage” the franchisor should request the prospective franchisee to sign a confidentiality undertaking that he/she would observe total confidentiality and would not use the information on the franchise system in any way whatsoever, should he/she decide to withdraw from negotiations.

It is also advisable that confidentiality agreements be signed by relevant staff in franchisee outlets to protect the intellectual property.

Third is the cooling-off period. this is defined as the lead time between when information about the franchise is presented to the franchisee for consideration and the actual signing of the franchise agreement.

The franchise package (primarily the Franchise Agreement together with the Franchise Disclosure Document) must be provided to a prospective franchisee at least 14 days prior to a franchise or other binding agreement is entered into.

This period allows the prospective franchisee to seek legal counsel, comprehend the whole transaction and mobilize any remaining monies that might be required as joining fees.

It also allows the franchisee time to walk away from the deal if it is found not to be a good fit with the franchisee’s aspirations.

Fourth is payment. No payment of any monies to the franchisor is to be made prior to a franchise agreement being signed by both parties.

Upon signing, the franchisor’s preferred payment plan should be followed, but it should also be agreed what would happen if the franchisee has paid certain sums and ends up unable to take up the franchise, after all, owing to various reasons.

Finally, suretyships or guarantees. Where appropriate, members and shareholders of companies and corporate entities which wish to sign up as franchisees should be requested to sign suretyship/guarantee agreements, making them personally liable and accountable to the franchisor.

This allows franchisors to recover any losses, if any, directly from the shareholders in the event the corporate is unable to meet its obligations.

The writer is the Project Promoter and Lead Franchise Consultant at Africa Franchising Accelerator Project aimed at achieving faster African economic integration under AfCFTA.

We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise. We turn around struggling indigenous franchise brands to franchise cross-border.

We settle international franchise brands into Africa to build a well-balanced franchise sector. We create a franchise-friendly business environment with African governments for quicker African economic integration.

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