Important contents of a franchise agreement

Monday September 2 2019



Wambugu Wa Gichohi

Wambugu Wa Gichohi 

Modern franchise agreements are comprehensive legal documents of not less than fifty pages which prospective franchisees are highly advised to seek legal interpretation before signing.

This is because clauses thereto are professionally (legally) prepared and meant to protect the franchisor’s interest and those of the franchise system and unless the prospective franchisee has a legal background, they may not fully understand what they are signing, leading to future disputes.

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 continue examining provisions normally covered in the agreement. Thirteenth, renewal. It is normal for a franchise agreement to have a renewal clause.

Renewal is often subject to compliance with all provisions of the expiring agreement. Upgrading of premises and/or fixtures, fittings and equipment is also included as are execution and acceptance of the current franchise agreement and payment of a renewal fee.

Fourteenth, termination. The grounds upon which either party can terminate the agreement should be clearly specified to avoid unnecessary litigation.

Following termination, the franchisee is not entitled to continue using the franchisor’s business system, intellectual property or any part thereof.

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But with the franchisee having invested in setting up and equipping their outlet, disengagement procedures should be clearly laid out in order to protect the franchisee’s investment.

These might include outright sale of the outlet to the franchisor, allowing the franchisor to run the outlet as the two parties seek a new franchisee acceptable to the franchisor to purchase from the franchisee or outright sale by the franchisee to a new franchisee who must be accepted by the franchisor.

Fifteenth, dispute resolution. Detailed provision for dispute resolution should be made in case a dispute is called for by either party. All attempts should be made to avoid litigation.

Mediation by the franchise association is the first option, followed by other independent mediation, arbitration and finally litigation.

Sixteenth is operations and procedures. As discussed elsewhere, the operations procedures and training manual is closely intertwined with the franchise agreement.

The agreement must make effective reference to the manual to provide the necessary level of detail to control the operations of the franchise in a standard format to all franchisees.

Last, notices. It is important to specify the respective parties’ addresses where notices can be served and to establish a proper regime for the sending and receipt of notices including legal process where necessary.

It is not enough to assume the franchisees address to be at the franchised outlet- where will they be found post-termination?

Above are the specific clauses to be included in a franchise agreement, in additional to other clauses generally applicable to normal contracts. Additionally, where the franchisor choses to collapse into the franchise agreement several other documents needed to protect the franchise network, clauses describing and guiding use of each of the documents would be included in the agreement.

An example is where the license to the franchise operating system is included in the franchise agreement as opposed to being issued as a stand-alone document.

Another is a sample standard lease agreement developed by the franchisor that the franchisee would use to secure a site.

Yet another is the telephone transfer form that the franchisor would prepare for use when franchisees exit the system, normally given to the telephone company to transfer the franchisee’s business telephone line to the franchisor to protect telephone orders.

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.

wambugu.wagichohi@worldaheadafrica.com, franchising@tpsftz.org

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