The following excerpt is from Rick Grossmann’s bookFranchise Bible. Buy it now fromAmazon | Barnes & Noble | IndieBound
The franchise agreement is the contract between the franchisor and you, but it’s not a “standard” or “form” agreement. The format of the contract differs from one franchise system to another.
Related: The 23 Items That Make Up the Heart and Soul of the Franchise Disclosure Document
However, though each franchise agreement will differ in style, language and content, all franchise agreements have covenants, each of which describes a promise, right or duty that the franchisee or franchisor owes to the other or that benefits the franchisor or franchisee. The following is a list of those covenants that one most often sees in a typical franchise agreement. (The franchise agreement on our companion website will have the specific language that addresses each covenant.)
1. Grant of Franchise
The “Grant” section lets franchisees know that the franchisor is granting them the limited, non-transferable, non-exclusive right to use the franchisor’s trademarks, logos, services marks (called generally the Marks) and the franchisor’s system of operation (often called the System) for the period of time defined by the franchise agreement. The franchisee receives no ownership rights to the Marks or the System, and the franchisor always retains the right to terminate the franchisee’s grant-of-license because of a breach of the franchise agreement.
2. Opening Date, Territory Limitations, Build-Out and Similar Rights
This covenant describes the franchisee’s territory (be it exclusive or not) and sets up a time schedule by which the franchisee must find a brick-and-mortar location, must have the plans for the unit approved and must be built-out and opened. This section may also disclose other matters such as the computer equipment needed to operate the business and the like.
3. Fees and Required Purchases
This section will disclose the fees more specifically described elsewhere in the agreement. The fees include the initial franchise fee, any fees paid to the franchisor prior to opening, any fees paid to the franchisor during the term of the franchise, all advertising fee obligations and the like.
4. Advertising
In this section, the franchisor should repeat the franchisee’s advertising obligations as they’re stated in Item 11 of the franchise agreement (and the fees for which are identified in Items 5, 6, 7, 8 and 11 — as applicable).
5. Term and Renewal
This covenant spells out the term (length of time) of the franchise agreement measured from the date the franchise agreement is signed to the date that the franchise agreement expires. If renewal rights are granted, this section will also spell out the prerequisites of this arrangement.
6. Services Offered by Franchisor
Though not all franchisors will repeat the pre-opening and post-opening services that they offer the franchisee in the franchise disclosure documents, sound drafting principals will require that these matters be repeated in the franchise agreement. Including them in the franchise agreement, however, removes the specter of litigation as a way to insert rights into the contract that aren’t otherwise stated.