A franchise agreement is in essence not defined in separate category of law, but is governed by existing law of contracts. More specifically, a franchise agreement is a licence agreement whereby certain intellectual property is licensed by a franchisor to a franchisee. Included in the licensed intellectual property is typically the trade marks of the franchisor, know-how of the franchisor, the trade get-up of the franchise, and the like. In addition a franchise agreement will also include specific addendums according to which the franchisee should conduct the franchised business. The provisions of a franchise agreement define the basis of the relationship between a franchisor and a franchisee. It is therefore of utmost importance to have a franchise agreement drafted by experienced intellectual property attorneys, sometimes also referred to as “Franchise attorneys”. The prospective franchisor should however be aware that some firms might charge exorbitant fees for drafting a franchise agreement, which is often still inadequate in its practical implementation. Therefore a prospective franchisor is well advised to use a firm on the personal recommendation of other successful franchisors.
The franchisee must carefully negotiate the license. The fees and training period must be fully disclosed and there should not be any hidden costs. The franchise start-up costs and working capital must be explained before the franchise license is granted. Franchise agreements must explain amongst others all particulars and criteria in respect of the business model, as well as which aspects will form part of the business system. A franchisee should understand its rights and obligations as specified in the franchise agreement. It is recommended that a franchise attorney assist the franchisee during negotiations.
The franchisor must also carefully negotiate the license. The franchise agreement should disclose the all aspects of running the business, from administration, placing orders and customer service. The franchisor will have certain obligations regarding the protection of the franchise trade mark and infringement on the rights of any of it’s franchises. It is recommended that a franchise attorney also assist the franchisor during negotiations.