FRANCHISE LEGAL REQUIREMENTS

AUTHOR:RUDOLF A. KOTIK

Franchise agreements must be comprehensive. They are not sales brochures and there is not one standard work that fits any business. A good agreement is stretching from 25 to 60 pages and is just as much concerned to set out the obligations of you the Franchisor as well as your rights and the rights of the Franchisee as well as their
obligations.

That does not mean that franchise agreements are an equal balance of rights and obligation between equal business partners. Franchisors are responsible for the network as a whole and that sometimes means acting against the interests of an individual Franchisee for the greater good of the network.

Franchise agreements have gone through more than twenty years of development to ensure that Franchisors have the appropriate rights to do their job within a framework of fair and reasonable treatment for Franchisees. However, any Franchise agreement is biased in favor of the Franchisor is a fact of life.

There are only a limited number of Philippines lawyers familiar with the complexity of franchise agreements, and only some of those have the necessary skills to advise a business on the best way to structure a franchise agreement. In this area you must get fully experienced professional advice, like RK Franchise Consultancy.

The following items constitute the Franchise agreement of a typical franchise, although this list is not comprehensive and agreements vary to a considerable extent:

1. Appointment
2. Duration of the Agreement
3. Fees and other payments
4. Responsibilities of the Franchisors
5. Responsibilities of the Franchisee
6. Proprietary marks
7. Operating Procedures and Confidentiality
8. Advertising and Promotions
9. Royalty
10. Training
11. Insurance
12. Products and services
13. Transferability of the Franchising Agreement
14. Termination
15. Right and duties upon termination
16. Covenants not to compete
17. Renewals
18. Arbitration
19. Right of first refusal
20. Applicable law
21. Severability and construction
22. Notices

Other Legal Agreements which a Franchisor may need include:

• MEMORANDUM OF AGREEMENT
Pre-Contract to Franchise Agreement, if Franchise Agreement cannot be signed due to a.) location still under construction, b.) Shopping mall has no space available, c.) Franchisor still has to put his finances together among other reasons

• AGREEMENT WITH LANDLORD
Agreement between Landlord, Franchisor and Franchisee to secure the location for Franchisor if Franchisee defaults on Landlord or
Franchisor

• GUARANTEE AND ASUMPTION OF OBLIGATIONS
For Guarantee of low capitalized Franchisee (fresh graduates, etc.)

• TRANSFER & RELEASE AGREEMENT
If Franchisee sells his rights to be executed between Franchisor, Franchisee and Purchaser of the Franchise privileges.