by Rudolf A. Kotek
Franchise agreements must be comprehensive. They are not sales brochures and there is not one standard work that fits any business. A good agreement stretches from 35 to 60 pages and is just as much concerned to set out the obligations of Franchisors as well as their rights and the rights of the Franchisee as well as their obligations.
That does not mean that franchise agreements are an equal balance of rights and obligation between equal business partners. Franchisors are responsible for the network as a whole and that sometimes means acting against the interests of an individual Franchisee for the greater good of the network.
Franchise agreements have gone through more than twenty years of development to ensure that Franchisors have the appropriate rights to do their job within a framework of fair and reasonable treatment for Franchisees. However, any Franchise agreement is biased in favor of the Franchisor that is a fact of life.
There are only a limited number of Philippine lawyers who are familiar with the complexity of franchise agreements, and only some of them have the necessary skills to advise a business on the best way to structure a franchise agreement. In this area you must get fully experienced professional advice, like RK Franchise Consultancy.
The following items constitute the Franchise agreement of a typical franchise, although this list is not comprehensive and agreements vary to a considerable extent:
Appointment, 2. Duration of the Agreement, 3. Fees and other payments, 4. Responsibilities of the Franchisors, 5. Responsibilities of the Franchisee, 6. Proprietary marks, 7. Operating Procedures and Confidentiality, 8. Advertising and Promotions, 9. Royalty, 10. Financial Records, 11. Training, 12. Insurance, 13. Products and services, 14. Transferability of the Franchising Agreement, 15. Termination, 16. Rights and duties upon termination, 17. Covenants not to compete, 18. Operation in the event of incapacity of Franchisee, 19. Renewals, 20. Arbitration, 21. Right of first refusal, 22. Applicable law, 23. Severability and construction, 24. Notices, and 25. Waivers and non-waivers.
Other Legal Agreements which a Franchisor may need:
MEMORANDUM OF AGREEMENT
Pre-Contract to Franchise Agreement, if Franchise Agreement cannot be signed due to a.) location still under construction, b.) Shopping mall has no space available, c.) Franchisor still has to put his finances together
AGREEMENT WITH LANDLORD
Agreement between Landlord, Franchisor and Franchisee to secure the location for Franchisor if Franchisee defaults on Landlord or Franchisor
GUARANTEE AND ASUMPTION OF OBLIGATIONS
For Guarantee of low capitalized Franchisee (fresh graduates, etc.)
TRANSFER & RELEASE AGREEMENT
If Franchisee sells his rights to be executed between Franchisor, Franchisee and Purchasee of the Franchise privileges
Rudolf Kotik is the founder of RK Franchise Consultancy Inc, which developed more than 350 Filipino Companies into Franchise Systems. Email: rk@rkfranchise.com; Websites: www.rkfranchise.com, www.franchise.ph
