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9 sections of the franchise agreement that needs your careful scrutiny

By Erlinda S. Bartolome |

Potential franchise applicants are growing up fast. At the last Filipino Franchise Expo at the SM Megamall in Mandaluyong City, franchisers were surprised at the quality of their questions and their interest in the nature of the franchise package, the payback period, and franchiser support of the franchisee.

 

This is all to the good, but many applicants are intimidated on learning a franchise agreement could reach up to 50 pages. And many feel that most deals are stacked against the franchisee.

 

“Franchise agreements seem unfair from the franchisee’s perspective, but that’s because they capture in black and white the policies, systems and controls that the franchiser has developed to create and ensure a uniform system,” according to the book Franchising 101 by Chenoa, Stadfeld and Kanouse. “But uniform doesn’t mean unfair. Even though the franchiser will always have the upper hand in the relationship, there is no reason for any franchisee to sign an agreement that asks everything of the franchisee and nothing of the franchiser.” As a result, the first reality that the franchise applicant should accept is the tenor of the deal.

 

Keep in mind that any franchise agreement worth the paper it’s written on must necessarily be detailed. It could be as few as 20 pages and as long as 100. Be careful of any franchiser who gives you a three-page franchise document: a three-page agreement does not say much about the franchiser’s knowledge of what he is doing.

 

Once you’re sure you are interested in a particular franchise and have gone as far as requesting the franchise document, you will need a lawyer to help you interpret it. Before that, however, you will have to read the deal carefully, write down your comments, and mark particular sections you don’t understand fully. Don’t be intimidated by the number of pages. And don’t let the franchiser rush you into signing. Remember: once you sign, you will have to live with the agreement and the franchiser for at least five years.

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After you’ve read the agreement, send it to your lawyer for review. Then set a meeting with him to discuss it and your written comments. The meeting should enable you to better understand the agreement and let you decide whether or not you are up to signing it.


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