Here are 20 things you need to know about franchise agreements. According to Goldman, franchise agreements are typically concluded for several years. They typically last between five and twenty-five years, 10 years being the average length of a franchise agreement. Agreements often provide for conditions for extension. Some states, including New Jersey and Wisconsin, recognize indeterminate franchise agreements. These are franchise agreements that are renewed every 10 years, sometimes automatically, for an indefinite period. “Franchise agreements are the Bible of the franchising industry – they are the main agreements for the relationship between franchisees and franchisees,” says Evan Goldman, partner at the law firm A.Y. Strauss in New Jersey and president of the firm`s franchise and hospital practice group. [Read related articles: Ultimate Guide to Business Franchising] For most franchisors, their brand will be their most valuable asset. It allows the replication of their concept in different areas, while making it consistent and immediately recognizable by customers and the general public.
The franchisor must therefore ensure that his or her most valuable asset is protected by law. That`s the purpose of the franchise agreement. Most franchise agreements also contain minimum performance targets (particularly for more established franchise brands). These objectives indicate what the franchisee must accomplish and what will happen if they do not. A substantial breach of objectives could constitute a violation of the franchise agreement. It is therefore important that these objectives are realistic. For reasons of fairness and consistency, franchisees should all be on the same contractual terms. In this way, all franchisees in the network will respect the same operating conditions. This is particularly important for a franchising model, as its success is based on the replication of a trusted brand. Key: Federal law requires disclosure of 23 key points through a franchise, which are defined in a franchise disclosure document before the money is exchanged.
In the previous issue of Franchise Law News, Terrence Dunn and Michael Einbinder wrote an article on how to strengthen your franchise agreement. This article addresses this topic and focuses on the role of the franchise agreement in the franchise system.