A franchise agreement is generally viewed as and is prepared to conform to the requirements of an ordinary commercial contract governed by the same legal principles as any other contract.
It is a framework for the smooth operation of the franchisor-franchisee relationship.
While the agreement specifies major operational and financial issues, it often refers to the operations and procedures manual to provide the necessary details.
The franchise agreement also allows the franchisor to legally enforce specified operational, performance and reporting objectives detailed in the operations and procedures manual.
Modern franchise agreements are comprehensive legal documents of not less than fifty pages, which the franchisee is advised to seek legal interpretation before signing.
A lot of smaller documents involved in the franchise development process may be collapsed into the franchise agreement, or may be used as stand-alone documents. Such include, but are not limited to, intellectual property assignments deeds, telephone transfer forms, standard lease agreements for leased sites etc.
Where these are included in the agreement, they would be mentioned in the main agreement and samples attached as appendices for use by the franchisee when engaging third parties.
Whilst it is necessary to apply a contract according to the specific needs and characteristic of each franchise, and also in accordance with the laws of a country, the following provisions will normally be covered in an agreement. First, the Parties.
More often than not, scant attention is given to the legal capacity of the contracting parties to the agreement.
Where any of the Parties does not meet the minimum legal threshold to contract, this can detrimentally affect enforceability of an otherwise unimpeachable agreement.
Second, definitions. The purpose of a definitions clause is to achieve clarity and consistency in the understanding of the agreement-a meeting of the minds.
A definition is also useful to avoid syntactic ambiguity. Useful definitions to include would normally cover meaning of the Business System, a Franchised Business and Intellectual Property (this normally includes designs, know-how, copyright, trade dress, trademarks, trade secrets and patents).
Each of the intellectual property items could be separately defined but this will depend on the circumstances of each franchise.
Definitions should also include the Operations and Procedures of the system-normally detailed in the Operations Procedures and Training Manual-, the Premises from which the franchised business is to be conducted and the Commencement date of franchise.
Third, the franchise rights granted. The agreement will normally grant the franchisee the right to operate the franchise business from the premises defined in the definition clause, using the franchisor’s business system and intellectual property as defined in the definition clause and subsequently disclosed in the agreement.
Fourth, term of agreement. The agreement period must be long enough for a franchisee to make a good return on his/her investment.
On the other hand, the franchisor is likely to prefer a relatively short initial term, allowing flexibility to update the agreement from time-to-time to take care of changes in operating standards, evolution in the business system, changes in market conditions and controlling laws.
The key to achieving fair play lies in identifying a franchise period that balances the needs of the franchisor with those of the franchisee.
Fifth, obligations of the Parties. The full range of obligations of both the franchisor and franchisee must be dealt with in complete detail, leaving nothing to guesswork. These obligations must be reasonable and capable of being performed by the relevant parties.
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.