The Importance of Franchise Agreements
A franchise is an arrangement in which the a franchisor grants the rights to its franchise to the franchisee, who sells products or services in accordance with the franchisor’s specifications. Franchises are common in fast food restaurants, convenience stores, hotels, gas stations, etc.
What Is a Franchise?
The definition of a franchise in Florida law is fairly broad. A franchise is defined as a contract between two or more parties where:
- The relationship is commercial,
- One party (the franchisor) grants right to another party (the franchisee) to sell products or services that are manufactured, processed, distributed, organized, or directed by the franchisor,
- The franchisee’s independent business is part of the franchisor’s distribution system, and
- The franchisee relies on the franchisor for the basic supply of goods.
Usually, in a franchise arrangement, the franchisee pays a fee to the franchisor, and the franchisor provides training to the franchise. Franchise arrangements provide the ability for a franchisee to sell licensed goods or services, while the franchisor can protect its trade secrets and business plans.
A written franchise agreement is not specifically required by Florida law. However, it is essential to have one. The agreement can specify the details of the relationship between the franchisor and franchisee and specify how the business will be run. Having such an agreement, drafted by an attorney, is crucial for protecting the rights of both parties. A franchise agreement commonly covers the following provisions:
- The nature of the franchise: what the business is, and which rights the franchisor is granting.
- The location or territory covered by the agreement.
- The duration of the agreement. A franchise agreement usually limits the number of years that the agreement will be in effect, and how to renew at the end of the agreement.
- Fees associated with the franchise, which commonly include (1) the initial fee to use the franchisor’s business plan, (2) an ongoing fee, often monthly or quarterly, and often comprising a percentage of the profits, (3) payment for any goods or services that the franchisor provides, and (4) an advertising fee.
- The duties of both parties. The franchisor’s duties often include training and ongoing consulting. The franchisee may be responsible for adhering to the franchisor’s program through compliance with quality and uniformity standards.
- An intellectual property license permitting the franchisee to use the franchisor’s logo and other brand identification.
- Advertising, which can include provisions governing central advertising from the franchisor and the franchise’s advertising for a particular location.
- Restrictions on the sale and transfer of the franchise.
- Dispute settlement provisions, such as requiring arbitration.
- Provisions governing termination. Florida law requires due cause plus 180 days written notice to terminate a franchise agreement, but a franchise agreement can include details.
- Non-compete agreements, which provide time and geographic limits prohibiting the franchisee from competing with the franchisor for a certain time after terminating the franchise.
If you are considering purchasing a franchise, it is important to consult with an attorney when formulating a franchise agreement. An experienced franchise attorney understands what provisions to include and knows what language to use so that your best interests are protected. Please contact the Law Offices of Larry E. Bray in Boca Raton for an initial consultation.