All you need to know about Franchise Agreement

A Franchise Agreement is a legally binding agreement in which a well-known and established business (franchisor) grants right to provide its operational model, brand, and necessary support to the other party (franchisee) to run a similar business in exchange for a fee and share in the income generated. Such agreement provides the terms and conditions of the franchisor for a franchisee. Every franchise is governed by these terms, which are generally a written agreement between both parties. The franchise agreement plays a key role in governing the franchisee-franchisor relationship.

Page Content Parties in a Franchise Agreement Key Elements of a Franchise Agreement Types of Franchise Agreement in India General Provisions covered in Franchise Agreement Important Laws Governing Franchising in India Conclusion

In this article, we try to give you a clear understanding of various aspects of the franchise agreement an applicable laws which govern such agreement

Parties in a Franchise Agreement

There are two parties involved in a Franchise Agreement:

Franchisor : The party or a person which grants the right to another person to use its brand, business and services.

Franchisee : The party or a person who buys the right to run the similar business which franchisor is running.

Key Elements of a Franchise Agreement

Generally, Franchise Agreement includes the following key elements:

• Tenure and Fee of the Agreement: This involves the duration of the course of franchisor-franchisee relationship in which the franchisee is required to pay an initial fee to legally become a part of such relationship, post which further fees needs to be paid to maintain such relationship and position.

• Defining and outlining relationship of both the parties: It covers the necessary details including the name of the people which are involved in the agreement. Further, it defines the relationship of the parties and obligations of the franchisee to set up the business as per the standards set by the franchisor.

• Granting use of Intellectual Property: This agreement also involves the patents, trademarks and other necessary manuals which will be provided by the franchisor to the franchisee along with their expected use.

• Location and Territory: The Franchise Agreement includes the territory assigned by the franchisor to its franchise. The territory assigned can differ in each agreement. There are two types of franchise territories:
  • Exclusive territory: When a franchise is sold with an exclusive territory, it means the franchisor cannot sell other franchises in that particular area. The territory assigned is exclusive to that franchisee.
  • Non-exclusive territory: When a franchise is sold in a non-exclusive territory, the franchisor can sell other franchises to people in that territory.

Types of Franchise Agreement in India

General Provisions covered in Franchise Agreement

Though there is no standard format for drafting the franchise agreement as the terms and conditions vary franchise to franchise and industry to industry. Few provisions that are required to be covered in the agreement are as follows:-

• Grant of Right: The Franchisor grants to the Franchisee during the enforcement of this Agreement and subject to the terms and conditions hereof the rights to carry on the Business in accordance with this Agreement including the right to use the know-how, the products or services etc.

• Duration of the Agreement: This provision states the duration of the agreement from when the agreement shall come in to force and the period how long it shall be in force.

• Renewal: If the franchisee gives the written notice of his desire to renew the agreement and franchisor consider it fit then the Franchisor and the Franchisee will enter into a new standard Agreement.

• Obligations of FranchisorThe franchisor shall:-
  • Assist the franchisee to establish and commence the business effectively.
  • Assistance in day to day operation
  • Conduct a training programme on monthly basis.
  • Conduct a training programme for the staff as well.

• Obligations of Franchisee: The Franchisee agrees to protect the Franchisor’s business and intellectual property rights and shall maintain the identity of the business in common.

• Advertising and Promotion: That Franchisor will supply the product promotional material and physician samples to the Franchisee from time to time.

• Severability: If any part or part of this agreement becomes unenforceable for any reason, the rest agreement shall be continued in full force and effect.

• Notice: Describes how and where the parties shall formally communicate to each other in the event they need to take such action (e.g., all notices shall be deemed to have been received by the other party within five working days if sent by regular mail to the addresses below).

• Force Majeure (An act done by God): If an Event of Force Majeure results in a loss or damage to the business location or Property then who shall rectify such loss or damage to the extent required by the franchisee to reuse the property in the same manner as before.

• Miscellaneous: Besides the above-mentioned points franchisee agreement shall also include the following:
  • Franchisee’s accounts
  • Audit
  • The sale of the business
  • The death of the franchisee
  • Termination
  • Post-termination provisions
  • Copyright
  • Entire agreement
  • Waiver
  • Warranties
  • Improvements

 

Important Laws Governing Franchising in India

The following are the important laws which govern franchise business in India:

• Indian Contract Act, 1872
• Competition Act, 2002
• Consumer Protection Act, 1996
• Foreign Exchange Management Act, 1999

Conclusion

Franchise Agreement is the legal contract between the franchisor and the franchisee, hence we highly recommend that you must employ an experienced professional to draft the franchise agreement. A lawyer who is inexperienced with the laws won’t meet all the requirements to guarantee your complete understanding of the points of interest that are discussed in the franchise agreement.

Contact Legal Window to help you in drafting a proper legal franchise agreement as we have a team of qualified and experienced lawyers.