Many people are attracted to the idea of a franchise. The major benefit of franchising is that it enables a person to buy into an operation whose business methods have been tried and tested. This substantially reduces the chance of failure but it is more critical than ever to have expert legal advice so that you can get the best deal you can from the franchise agreement given that you will be paying a substantial sum to the franchise holder.
Less than 10% of retail sales in Ireland are carried out as a result of franchising whereas in the US, around 30% of all retail sales come from franchises.
The benefit of taking on a franchise is that you generally are able to make use of the franchisors:
- Signs and equipment.
- Office/restaurant/shop decor and design.
- Method of operation.
- Marketing activities.
A standard franchise agreement will cover the following areas:
- Primarily the aim of the franchise agreement is to cover all matters agreed between the parties. To this extent, it is just a normal written agreement between parties.
- The agreement should seek to protect the franchisor and the franchisee but in reality these agreements tend to be quite generic and the emphasis is very clearly on the franchisor’s brand, reputation and in particular the franchisor’s intellectual property.
- The agreement will set out exactly what is being granted to the franchisee, it will cover a specific area and very importantly will set out whether it is exclusive or non-exclusive. The term of the contract will be set out but it must be long enough to enable the franchisee to cover his initial investment and from the franchisee’s point of view, it should come with a right to renew.
- All costs involved have to be very clearly set out particularly given that there are likely to be introductory fees and expenses and ongoing royalties given that most contracts will have a performance clause and payments may be linked to turnover or a percentage of gross revenue.
The following matters will also generally be covered in a franchise agreement:
- Training and support of staff.
- Supply of goods and/or services.
- Responsibility for advertising, marketing and promotion.
- A very specific business system will be set out and in particular the franchisor will generally set out how the business is to be run and the agreement will include confidentiality obligations, accounting and reporting requirements and there will be comprehensive reference to staff levels, behaviour and what is to happen if the franchisee becomes disabled or is in breach of the franchise agreement.
We strongly advise clients to seek expert legal advice concerning franchise agreements because invariably they are told that the agreement cannot be negotiated. This invariably is not the case and there is always room for negotiation. Even in the unlikely event that there is no room for negotiation, the major benefit of expert legal advice is that we can point out to you the risks involved and you can then make an informed decision.
We can advise in relation to all types of franchises and we have recently acted for pizza franchises, home based franchises, hairdressing franchises and food franchises.