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In a franchise, the franchise agreement determines the rights and obligations of the franchisor and franchisee. While a franchisees’ obligations can vary across different franchise businesses, franchisors generally grant franchisees some fundamental rights relating to the use of intellectual property and to a training and support program. This article will explain the franchise agreement and five rights that franchisees typically obtain when they sign the agreement.
What is the Franchise Agreement?
The franchise agreement is a legal contract that franchisors and franchisees share. The agreement establishes the franchise relationship and the duties and responsibilities of either party. The agreement also confers rights on the franchisee, such as the right to use the franchisor’s trade marks.
Bear in mind that the specific terms of each franchise agreement will vary. As a result, you should read the franchise agreement in detail to check what rights you have before signing. If in doubt, you should seek legal advice before signing a franchise agreement. Otherwise, you risk entering into an unfavourable business venture.
What Rights Can Franchise Agreements Give Franchisees?
There are a few rights that franchisees typically obtain when they sign the franchise agreement.
1. Intellectual Property
A fundamental right of many franchisees, especially business format franchisees, is the right to use the franchisor’s intellectual property rights. It is common for franchisees to obtain the rights to use the franchisor’s:
- logo;
- brand name; and
- other relevant elements of the franchisor’s brand.
Franchisors will detail how franchisees must use these rights within the agreement. Breaching these terms may lead to a breach of contract and infringement of the franchisor’s intellectual property rights.
2. Exclusive Territory
Some franchisors grant franchisees the ability to operate within an exclusive territory. Territorial exclusivity means the franchisor will not allow another franchisee to work within the same area.
Exclusive territory rights are favourable terms for franchisees. Customers within their exclusive area will go to the franchisee’s outlet rather than other local units of the same franchise.
3. Franchisee Training
Franchisors must provide initial training and provisions for ongoing support to franchisees. You should check that the franchisor has specified the amount of training you will receive and how they plan to deliver this. If a franchisor does not give you the training and support they previously promised in the franchise agreement, they may be in breach of contract.
4. Renewing the Agreement
Franchisors should grant franchisees the right to renew the agreement under particular conditions.
5. Selling the Franchise
Franchisees often have the right to sell their unit. This transaction is also known as a franchise resale. Some franchisees join a franchise with the intention to sell after a particular duration.
The franchisor may set strict conditions on franchise resales. For example, the franchise agreement might specify the:
- process of selling the franchise;
- fees you will need to pay; and
- franchisor’s consent requirements.
Therefore, it is essential to check the conditions under which the agreement allows you to sell your franchise.
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Restrictions on Franchisee Rights
The franchisor may restrict your rights in particular ways. For example, the franchisor may include a non-compete clause in the agreement. A non-compete clause could prevent you from opening another business in the same industry for a specified period. Therefore, it is essential to thoroughly read the franchise agreement so that you understand your rights and obligations in the franchise arrangement.
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Key Takeaways
Common rights franchisors grant their franchisees within a franchising agreement can include:
- use of the franchisor’s intellectual property;
- exclusive territory rights;
- a programme of training and support from the franchisor; and
- entitlements to renew the agreement and sell the franchise.
The terms of each franchise agreement will be different, meaning the rights you obtain can also vary based on the type of franchise you join. Therefore, you should ensure that you read and clearly understand your franchise agreement before signing it. If in doubt, you should seek legal advice before signing the agreement.
If you need help understanding your rights as a franchisee, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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