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Franchise agreements then and now

The franchise agreement has gone a long way since the early years of franchising.
By Erlinda Bartolome |

THEN: About 10 years ago, a client called us to a meeting to complain that her franchisees were refusing to pay royalty and insisting on doing what they wanted to do in their branches.

 

The first document we asked for was the franchise agreement, but to our dismay, she gave us a three-page document--the third page was the only page notarized--and nowhere in the agreement was there any mention of royalties, much less a provision for compliance with the franchiser\\\'s system. While our hearts bled for the franchiser, there was nothing we could do. (We found out later that a professor in a noted educational institution drafted the agreement.)

 

NOW: Franchise agreements have evolved from three pages into documents of up to 50 pages long. Most follow international franchise formats and sections, and franchisers now are very much involved in their drafting. They\\\'re particular about what the franchisees can and cannot do. They take pains to discuss with them the franchiser-franchisee relationship and to detail the parties\\\' responsibilities to each other, to the franchise system and the brand. And more and more franchisers are getting involved in drafting the franchise agreement to map out the franchise\\\'s direction.

 

THEN: At about the same time, we gave a client the outline of a franchise agreement and requested that he forward the outline to his lawyer. It took months before we got it back, and when we did, we found that the lawyer had returned it with a note saying it would do as a franchise agreement.

 

NOW: After over 10 years, more lawyers are able to craft franchise agreements with a clear understanding of the peculiarities of franchiser-franchisee relations. Potential partners now have a firm grasp of each other\\\'s position and their responsibilities to each other, and are able to appreciate the importance of understanding what the agreement is all about and what it entails. This is particularly true during the talks leading up to contract signing, when franchiser and franchisee discuss what the relationship is all about and what is required of each to make the relationship successful.

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THEN: After seven years, a franchiser has finally given up on one franchisee and decided to cut the relationship. During the termination procedures, the franchiser asked the franchisee to produce his copy of the 10-year agreement. The franchisee produced the documents, and the franchiser found it in mint condition. The franchisee hadn\\\'t opened it at all to read what it was all about!

 

NOW: Happily, franchisees are now more knowledgeable about franchising. We have come across many franchisees who literally go over each section of the agreement and ask for clarifications and explanations. This turn of events sometimes does not sit well with some franchisers, but the bottom line is, the more questions franchisees ask, the better before they sign off on the franchise agreement. They have to know exactly what they\\\'re getting into and absolutely clear about what\\\'s expected of them.

 

If you\\\'re a potential franchisee, never allow the thick documents to scare you or turn you off. Read the agreement thoroughly and mark the sections you want clarified or explained further. If you plan to seek legal counsel later, make some notes and then go over the agreement with the lawyer section by section to be clear about what it\\\'s all about. Only then should you sign on the dotted line.

 


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