What is an ‘intent to proceed’ agreement?

Intent to proceed agreements are optional agreements and may be entered into by a franchisee and franchisor before a franchise agreement is signed. It may also be referred to as a ‘territory reservation’ agreement.  From the franchisee’s point of view, one of the main aims of the agreement is often to secure a territory in which the franchisee wishes to operate the franchise. It may therefore offer a degree of ‘exclusivity’ for a particular territory while final negotiations between the franchisee and franchisor continue, which means the franchisor will usually agree not to grant that particular territory to another franchisee while negotiations are underway.  However, by signing an agreement there should be no obligation to proceed to signing the full franchise agreement if terms cannot be agreed. The agreement will also usually set a deadline by which the franchise agreement should be signed or the deal will not proceed.  An agreement will almost certainly require the franchisee to pay a deposit. The franchisee should therefore ensure that the agreement provides that any deposit paid will be repaid if the full franchise agreement is not signed, or if it is signed, will count towards any initial fee or other fee payable by the franchisee under the franchise agreement.  This is an area where the parties could easily find themselves in dispute. Therefore, it is crucial that any intent to proceed is set out in a written document and signed by both parties, especially where the franchisee pays a deposit.