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What is a Franchise Agreement?

A Franchise Agreement is a legal, binding contract between a franchisor and franchisee. In the United States franchise agreements are enforced at the State level. Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule.

What are the common conditions of a franchise agreement?

Here are 10 fundamental provisions outlined in some form or fashion in every franchise agreement:

• Location/territory. The franchise agreement will designate the territory in which you will operate and outline any exclusivity rights you may have.
• Operations: This section details how franchisees are expected to run their units.
• Training and ongoing support: Franchisors offer training and training programs for franchisees and their staff. Training may take place at corporate offices or out in the field. All ongoing administrative and technical support will also be outlined in the agreement.
• Duration: The document will detail the length of the duration of the franchise agreement.
• Franchise fee/investment: There will generally be an upfront initial franchise fee that grants the franchisee the right to use the franchisor's trademark and operating system. Those costs will be clearly outlined.
• Royalties/ongoing fees: Here you will find the details of the franchisor's royalty structure. Most franchisors require franchisees to pay an ongoing royalty, usually a percentage of total sales, which is often paid on a monthly basis.
• Trademark/patent/signage: This section will outline how a franchisee can use the franchisor's trademark, patent, logo and signage.
• Advertising/marketing: The franchisor will reveal its advertising commitment and what fees franchisees are required to pay towards those costs.
• Renewal rights/termination/cancellation policies: The franchise agreement will describe how the franchisee can be renewed or terminated. Some franchisors include an arbitration clause. This requires, in the event of any legal action, that an arbitrator review the case before it goes to court.
• Exit strategies: Every franchise has its own resale policy. Some allow franchisees to sell their franchises at their discretion. Other agreements include buy back or right of first refusal clauses. These allow the franchisor to buy back the franchise at a rate determined by them or to match any potential buyer's offer.

Sources: https://en.wikipedia.org/wiki/Franchise_agreement, https://www.franchising.com/guides/the_franchise_agreement.html