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Dec
22

Important Elements of Franchise Contract

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FranchiseFinders-Sign– 3 Important Elements to Understand Before Signing a Franchise Contract

A franchise agreement is a legal document between the franchisee and franchisor. Both parties must understand and accept the content therein before
the dotted lines are signed. The agreement stipulates the duties, rights and responsibilities expected from both parties. There is usually a 5 day grace period before franchise contracts are signed. This gives you time to look at it thoroughly and also seek legal counsel. It is crucial that you understand everything before you sign, so that you are not caught in the bog if things do not work out. Here are 3 important elements you need to understand before signing a franchise contract

1. Strong Franchise Companies Play Hard

If you are looking for a strong franchise company, prepare yourself for their iron-clad conditions.  These companies realize that a one-size fits all approach is what every franchisee should adopt.  They play hard ball and avoid negotiating the contract because they want to provide all franchisees with a level playing field. However, if there are areas of the contract that require concerns, you can always solicit a letter of clarity to explain those grey areas. It might be a non-negotiable contract. But when things are clarified or explained even further, it tends to put the mind at ease.

2. Agreements are Unilateral by Nature

When you peruse a contract, realize it is written from the perspective of the franchisor. It may seem unfair and even unreasonable that the franchisor would not negotiate terms. But you need to understand the interest of the franchise needs to be protected. Integrity, brand reputation and the overall system took time to build. If parameters are not set in place, it could all crumble in a day. Franchisors will always consider themselves first and franchisees, second. The franchised company needs to be protected. It is in the best interest of both parties.

3. There is a Lot Expected of You

A franchise contract is filled with a lot of rules. These rules help you understand priorities and what it takes to succeed. They are spelt clearly and you are told exactly what to do, to avoid mistakes or misinterpretation. Alternatively, the agreement tells you a number of things you should not do.  It is only common sense that franchisors providing trade secrets tell you not to use their systems outside their jurisdiction thereby jeopardizing the activities of other franchisees. If you are having any issues understanding what has been laid down, reach out to established franchisees and ask them.

Due to the disclosure obligations and regulatory compliance it is difficult to negotiate certain areas of a contract. However, areas like developmental rights, territory size, royalties and area protection can be negotiated. Find out which areas can be negotiated and what other incentives are offered before signing the contract. Any differentiations from the original terms of agreement must be written in the final version of the franchise agreement. Get a franchise attorney to help you do this.

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Alam Q is Franchise Finder and Broker of Record with ProClient Brokers Inc., Brokerage. He helps entrepreneurs find matching franchise business suitable in their situation by providing free information about the concept. For more info. check Franchise Finders

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