Evaluating a franchise agreement

The franchising agreement is perhaps the most significant document in a franchise as it contains the terms and conditions mutually agreed upon by the franchisor and the franchisee. Containing the most important guidelines for a franchise relationship, this agreement needs to be carefully evaluated before the advent of the relationship.

However, it is rather unfortunate that most franchisees do not read the franchising agreement carefully and completely simply because of its longevity and complexity and also the fact that it is drafted mostly in legal parlance. A full review of the agreement must begin right after meeting the franchisor and evaluating the various aspects of the franchise. It might also help to hire a franchise advisor or a solicitor.

There are some important elements that a franchisee and his advisor must look out for while evaluating a franchise agreement:

  • Verbal promises made by the franchisor during the face to face meeting. These promises need to be included in the agreement so that they become a part of the legal relationship.
  • Consistency between the franchise agreement and the disclosure agreement.
  • Never sign an agreement that is not clear, especially if the irregularity is on the topic of defaults and terminations.
  • While most franchise brokers will be able to provide some guidance, it is better not to rely on them for legal advice. It must be remembered that they work for the franchisor even if they appear knowledgeable.

In case there are some points the franchisee does not agree with, negotiations must be done on those points so that a mutual agreement is reached before embarking on the relationship.