Entering into a franchise agreement can provide a quick route to profitability for a new business owner.
When taking a franchise, the franchiser (the person granting the franchise) will usually provide the franchisee (the person taking a franchise) with two key documents; the Franchise Agreement and the Operations Manual.
What is a Franchise Agreement?
The Franchise Agreement contains the principal terms upon which the franchise will be granted and governs the legal relationship between the parties. It includes:
- The term of the Franchise Agreement and renewal provisions;
- The payment obligations of the franchisee;
- The training demands of the franchisor;
- The termination provisions;
- The resale provisions of the franchise.
A franchisee should always review the provisions of the Franchise Agreement in depth before signing the agreement, since they will be unable to alter the terms of the Franchise Agreement post signing, without the franchisor’s consent (which is unlikely to be forthcoming). It is important for the franchisor to keep the intended business relationship in mind whilst carrying out a review of the Franchise Agreement, because franchisors typically utilise template documents across their franchise network which may not necessarily reflect the intended agreement.
What is a franchise Operations Manual?
The Operations Manual governs the day to day running of the business. It contains the methodology and quality control provisions that the franchisee must adhere to whilst operating the franchise. Given that the document contains commercially sensitive business “know how”, a franchisor usually requires the franchisee to sign a confidentiality agreement prior to disclosing a copy of the Operations Manual.
The operations manual is usually an evolving document which can change over time when business processes are streamlined or refined. The franchisee should be comfortable with the overarching principles set out in the Operations Manual prior to signing the Franchise Agreement. Breaching the Operations Manual can also lead to a breach of the Franchise Agreement which could trigger numerous adverse consequences, including termination the Franchise Agreement.
Joel Gocool specialises in advising on and negotiating franchise agreements. Joel has a wealth of experience in identifying the key considerations a franchisee should make before starting a new franchise venture. If you require advice on franchising, please contact Joel Gocool on 01276 686 222 or at Joel.Gocool@Herrington-Carmichael.com.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to your own particular matter before action is taken.