Key approach: When an agreement has a pricing structure, authorizes the use of trademarks and provides a marketing system and/or modus operandi, it is automatically considered a franchise agreement. Other specific provisions may be introduced depending on the reflection negotiations. Subway is an example where much has been written about the oversaturation of the market and its negative effects on franchisees. A problem that very often arises depends on whether franchise agreements are negotiable or not. The answer is that they are negotiable, provided that the negotiated amendments are based on a request from the franchisee and offer the franchisee more favourable, but no less favourable, terms and rights. While franchise agreements are generally negotiated and often modified, changes are most often limited in nature, as franchisors do and must emphasize consistency within their franchise systems. Franchisors should never negotiate or modify structural elements such as initial franchise rights and royalties. A franchise agreement is a legally binding document that describes the terms and conditions of a franchisor for a franchisee. These conditions apply to each franchise, which are generally described in a written agreement between the two parties. Franchise agreements represent all transfer rights to a buyer of the franchisee`s ownership shares in the franchise relationship. Sometimes franchisors retain the right to a first refusal, which means they get the first chance to buy your business if you decide to sell. Keep in mind that granting this authorization does not mean that you give the franchisee ownership of your branded items.
The franchisor may terminate the franchisee`s subsidy in the event of a breach of the franchise agreement. As a franchisee, you must keep accurate records and submit regular financial and operational reports. Since royalties often represent a percentage of gross sales, it is particularly important to report accurate sales figures. The franchisor generally has the right to request additional information, including tax returns, and verify your records. You may also charge an audit fee. While royalties may be mentioned throughout the agreement, taxes are specifically mentioned in their entirety. An experienced franchise lawyer can explain the important provisions of the franchise agreement. A franchise lawyer may also be able to highlight unusually harsh or one-sided provisions that are not common in the industry.