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What information should a franchise agreement contain?
Firstly, the agreement should set out the term of the franchise, which tells you how long you have been given to operate the business. There may be rights torenew the franchise agreement at the end of the term. If so, the agreement should specify the length of the renewal term and conditions that will need to be satisfied in order to obtain the renewal. There should be a grant clause that will set out the rights that you have been granted by the franchisor. In particular, it should state if you are granted an exclusive or a non-exclusive territory, which means the franchisor and other franchisees of the franchisor can operate in your territory.The franchise agreement should give you the right to sell your business, subject to certain conditions. It is common for the franchisor to take a percentage of the sale price of your business and the franchise agreement should set out how much this will be.A clause should set out your financial obligations under the agreement. These are usually divided into upfront and ongoing fees, such as management services fees and advertising contributions. You may be required to purchase goods or services from the franchisor, in which case the franchisor’s terms of sale or supply should be set out.The agreement will explain the franchisor’s obligations to you, initially to help you set up the business and its ongoing obligations to provide ongoing advice, assistance and other items. There will also be a clause setting out your obligations as a franchisee - you need to review these carefully so you know exactly what you are committed to do under the agreement. The agreement will set out the rights of the franchisor to terminate the franchise. There will usually be a right to terminate immediately for the most serious breaches and for the right to have a period to remedy other breaches. Finally, the franchise agreement should set out the provisions that will apply on termination. You will usually be prevented from competing with the franchisor’s business and the franchise agreement should set out for how long this restriction will last and what geographical area it applies to.
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