Each franchisee must sign the franchise agreement and the franchisor will also sign the document. A word of caution, a franchise agreement is a binding legal document and you can have a franchise lawyer checked on your behalf before signing. Franchisors are required to make FDDs available to potential franchisees at least 14 days prior to signing. If the franchisor makes major changes to the agreement, it must give the franchisee at least seven days to verify the franchise agreement concluded before signing it. In some jurisdictions, franchisors must provide franchisees with certain information obtained through the service of a disclosure document prior to the granting of a franchise. This publication document must be notified by the franchisor to the potential franchisee prior to the date of the franchise agreement. As a general rule, disclosure documents for franchised transactions must be disclosed to the potential franchisee the technical, economic and financial information of the franchisee. As mentioned above, master franchises, sub-franchises and development agents each have their own unique characteristics. We analyze their commonalities and differences below.
In accordance with industry standards, a franchisor often confers on the franchisee the right to grant under-franchised and under-licensed brands and the use of the operating system of franchised units in that territory to a third party, the under-franchised. The “Grant” section informs franchisees that the franchisor grants them the limited, non-transferable and non-exclusive right to use the marks, logos, service marks (usually called trademarks) and the franchisor`s operating system (often referred to as the system) for the period set by the franchise agreement. The franchisor does not obtain any ownership of the trademarks or system and the franchisor still reserves the right to terminate the franchisee`s licence due to a breach of the franchise agreement. Including specific provisions in the applicable agreement The property reserve may allow a franchisor to offer similar products and services under another brand. This can be done either by the franchisor launching a new chain or by purchasing another franchise system that sells the same products and services. Consolidation of several franchise concepts is common in today`s market. For example, the owner of Honey baked Ham purchased the franchise system known as heavenly Ham, and operated parallel systems. If this is the case, are there provisions in the franchise agreement that require the franchisor to either separate from that unit, grant the franchisee the first right of refusal of that unit, or to require the franchisor to acquire the franchisee`s unit? Many franchise agreements do not contain such clauses, but there is no question of a franchisor agreeing to amend its franchise agreement in order to provide for such solutions.
The parties can execute a development agreement at the same time as the franchise agreements in force. The signing of two separate agreements may provide additional protection for the franchisor, as it may terminate each of them if necessary and contain cross-end provisions that would allow the franchisor to terminate a contract if the franchisee breached its obligations under the other contract. Finally, the granting of an exclusive business to a franchisee in certain territories may pose significant risks to the expansion of the brand if the franchisee does not adequately comply with its obligations under the existing agreement. Exclusiveness is another relevant topic in these agreements. Exclusive rights to a territory are generally granted to franchisees and development agents. In the meantime, under-franchiseds generally only have a protection radius when other franchisees may not operate franchised units.
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