What to look for in a Franchise Contract

by Dr Martin Mendelsohn

The franchise contract will govern the dealings between a franchisor and franchisee. It will therefore be a comprehensive document which should deal with:

• what is to be done to assist the franchisee in opening for business;
• what happens during the relationship;
• what will happen if there are breaches of the agreement; and
• procedures for terminating the agreement and the consequences.

The contract will appear to be one sided and in many ways it will be. That is inherent in the nature of legal agreements where one party licences the other to use intellectual property rights in respect of such matters as trade marks, know-how, business systems and goodwill.

The reason for this is that each franchisee will be trading under the same business name, using these intellectual property rights with the objective of producing identical services and/or products to a uniquely high standard. Any failure by a franchisee to achieve that can cause harm to the goodwill and reputation of the system which will affect all other franchisees. It is in a sense a team game and the captain (the franchisor) has to be able to lay down and enforce the ground rules.

Some of the controls may appear harsh or difficult to understand, but the franchisor should be able to explain why they are there and what they are there for. For example, no franchisee would be allowed to sell his/her business without the franchisor approving the purchaser. The reason is simple – the purchaser will become a franchisee and must therefore satisfy the franchisor’s requirements for a franchisee. Otherwise the whole character of the system could change if purchasers did not match those requirements.

There are many other examples which could be given but space does not permit further elaboration.

You are therefore strongly recommended to contact the British Franchise Association and obtain a Franchise Information pack which will provide you with a further explanation.

Dr Martin Mendelsohn

Martin Mendelsohn represents many major national and international franchise companies. Martin has been active in many parts of the world providing support and assistance to franchise associations and has advised governments. He has written, co-authored and edited numerous publications, many of which have been translated into several languages. Martin also lectures frequently at conferences and seminars worldwide.