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  • Writer's pictureCrystal Lizama, CFE

What is a franchise agreement?

A franchise agreement is a legal contract between a franchisor and a franchisee, setting out the terms and conditions of the franchise relationship. The franchise agreement defines the rights and obligations of both parties, including the franchisee's rights to use the franchisor's trademarks, business model, and other intellectual property, as well as the franchisee's obligations to follow the franchisor's guidelines and standards, pay franchise fees and royalties, and adhere to other terms and conditions of the agreement.

Franchise agreements typically include a range of provisions, including the initial and ongoing fees that the franchisee must pay to the franchisor, the length of the franchise agreement, and the obligations and expectations of both parties. Franchise agreements may also include provisions related to the franchisee's right to renew the agreement, transfer the franchise to another party, or terminate the agreement under certain circumstances.

In order to enter into a franchise agreement, potential franchisees must carefully review and understand the terms and conditions of the agreement. This typically involves reviewing the franchise disclosure document (FDD), which provides detailed information about the franchisor and the terms of the franchise agreement, as well as seeking advice from professionals, such as franchise brokers and attorneys, to ensure that the franchisee fully understands their rights and obligations under the agreement.

Franchise agreements are typically structured to protect the interests of both the franchisor and the franchisee. I highly recommend reaching out to a reputable franchisee attorney to assist you with navigating through all legal documentation provided by the franchisor.

From my experience, the franchise disclosure document and franchise agreement are more heavily geared toward the franchisor, and important you really know what you're signing up for. Typically the term of the contract can lock you in for a term of 10 years with the franchisor. Not only are you signing, but possibly your spouse as well.

For further guidance, feel free to reach out with any questions you have.

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