Commercial Law
5 Things to Be Aware of When Signing a Franchise Agreement

5 Things to Be Aware of When Signing a Franchise Agreement

Entering into a franchise agreement can be very exciting, especially if you’re hoping to build a strong business that you can call your own. However, franchise agreements are also fraught with danger if you don’t understand them, which means that you should always speak to a commercial lawyer before signing anything.

If you don’t understand the fine-print of your agreement then you could run into trouble in the future. We’ve therefore put together a short list of the top 5 things to be aware of when signing a franchise agreement.

As always, this shouldn’t be taken as professional advice, but rather as information to guide you in the right direction.

  1. Be aware of any rules for operating

Different franchises have different operation rules that you will have to follow. Make sure that you’re familiar with any operating rules that your franchise has put into place, including things like operating hours, pay rates, software usage and the exact goods and services that you can sell.

  1. Understand termination policies

It’s extremely important to understand termination clauses from both parties’ points of view. I’d recommend speaking to your lawyer about this, as you don’t want to get it wrong.

If you don’t understand termination policies then you might find your contract terminated unexpectedly. On the other side of the equation, you might find that you can’t escape from your contract even when you want to.

  1. Know what support you’re entitled to from the franchisor

Some franchisors provide high levels of support and training. Others don’t. It’s crucial to understand exactly what you’re entitled to before you sign any agreements, otherwise you might find yourself thrown off the deep end without really knowing what you’re doing.

  1. Any costs and fees you’re going to have to pay

This is arguably the most important thing to think about before you sign any franchise agreement. Making sure that you read all of the fine print and understand every single fee could save you a lot of money in the future.

It’s worth going over your contract with a commercial lawyer before signing it for this alone. Make sure that you look for things like monthly royalties, initial start-up costs and anything else that the franchisor expects you to pay.

  1. How long the agreement is for

This is probably quite self-explanatory, but once again it’s important to make sure that you understand the fine-print associated with the length of your franchise agreement. Most franchise agreements are usually 10 or 20 years, but there may be some conditions that you have to consider.

For example, many franchise agreements will make it hard for you to sell your business to someone else. Often, the franchisor will have to approve the potential buyer. Alternatively, you might find that there’s a clause that lets the franchisor buy the business back off you instead of letting you sell it to someone else.

Final Word

Although franchise agreements can seem complicated at first, they really aren’t too bad. As long as you take your time to work through everything with your commercial lawyer before you sign everything should work out okay.