Franchise Agreement Development for Franchisors & Franchisees

A franchise agreement is a legally binding contract that sets out the rules of the franchising relationship that both the franchisor and franchisee have agreed to. The main purpose of this contract is to protect the intellectual property of the franchisor. In essence, a franchise agreement explains what the franchisor expects from the franchise in running the business. The agreement is also designed to ensure that all of the franchisees within an organisation are treated equitably. Franchise Administration can assist with franchise agreement development, for compliant and ethical franchising across South Africa.

Key Components of a Franchise Agreement Development include:

Location/territory – the franchise agreement designates the territory in which the franchise will operate and outlines any exclusivity rights that may be applicable.

Operations – the operations section details how franchisees are expected to run their units. This includes the manner and method of operations, business system requirements, suppliers, and advertising specifications.

Training and ongoing support – franchisors offer training and training programs for franchisees and their staff. Moreover, all on-going administrative and technical support is also outlined in the agreement.

Duration – the document details the length of the duration of the franchise agreement.

Franchise fee/investment – there is generally an upfront initial franchise fee that grants the franchisee the right to use the franchisor’s trademark and operating system. These costs are outlined in the agreement.

Royalties/ongoing fees – this section includes 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 outlines how the franchisee uses 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. Marketing materials may be included in the franchise agreement.

Renewal rights/termination/cancellation policies – this section describes how the contract/agreement is renewed or terminated. Some franchisors include an arbitration clause. In the event of any legal action, an arbitrator reviews 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.

For more information and assistance do not hesitate to contact – Franchise Administration