There is no standard franchise agreement for the entire industry. Each franchise brand creates its own contractual documentation. Most agreements contain general types of provisions, but they will not be formulated in the same way. A competition or non-competition clause is a statement in the franchise agreement prohibiting the franchisee from opening a business that would compete with the franchise.  Every business needs some kind of insurance for small businesses. The franchise agreement should contain a section explaining the amount of operating insurance that the franchisee must provide for its franchise. In addition, the franchisor should be referred to as «additional insured» in the franchisee`s policy. Territories are important to limit market saturation. A single franchise will find it more difficult to compete in oversaturated territory. Remember your significant investment in opportunity. How would you like you to have paid hundreds of thousands of dollars to open a franchise, just to find out that the franchisor allows another franchise just a quarter of a kilometre away? Duration of agreement: Then, make sure that the duration of the franchise agreement is clearly defined. How long is it – five, ten or twenty years? Is it renewable if the original contract expires? If the contract is renewable, how much do you have to pay? Is it the full fee deductible or is it enhanced for a renewal? According to Goldman, franchise agreements are typically concluded for several years.
They typically last between five and twenty-five years, 10 years being the average length of a franchise agreement. Agreements often provide for conditions for extension. Some states, including New Jersey and Wisconsin, recognize indeterminate franchise agreements. These are franchise agreements that are renewed every 10 years, sometimes automatically, for an indefinite period. The franchisor must also provide you with the documents listed below at least 14 days before signing a contract or non-refundable payment. This means that you have at least 14 days to read them, you can take more time if you need them. If you insist on creating your own disclosure documents — the franchise experts do not recommend it — you must familiarize yourself with the laws of the state in which you intend to franchise. At least contact the various state authorities to see if you are obligated to comply with their laws if you are selling to a franchisee based in that state or if you even want to operate franchises in that state. «If you enter into a franchise agreement prematurely, you can be hit with liquidated damages, which is usually a two- to three-year royalty, and there will be a verdict that will require you to pay it back,» Goldman said. The franchisee pays an upfront fee, often simply referred to as franchise fees. In addition to these one-time fees, the franchisee pays current licensing and advertising fees as well as royalties, annual royalties and more. The amount of the deductible fee is set on a case-by-case basis.
Here are some aspects of the agreement that you and your lawyer need to look at carefully to make sure you understand all the effects. Sometimes, after making a big decision to buy a franchise, you can change your mind. You can do this within seven days of signing or paying the money as part of the agreement (depending on what comes first).