A franchise agreement is the first thing you’ll need to secure before starting your franchising journey.
Here we cover what a franchise agreement is, the different types of franchise agreements, and how to navigate the legal terrain of franchise contracts. You can also download the franchise agreement template that we use, provided by the British Franchise Association.
Let’s get started.
What is a franchise agreement?
A franchise agreement is a legal document outlining the terms and conditions between the franchisee and the franchisor.
Each contract takes a slightly different shape depending on the business, but in essence they form the fundamental working relationship between both parties, outlining each other’s roles and responsibilities.
As part of the Just Shutters franchise agreement, the franchisor provides:
- An exclusive market territory
- Branded van and sales kit
- Comprehensive product training
- Marketing & business support
- The majority of business leads (70% on average)
In exchange, the franchisee pays an initial fee for franchise ownership and agrees upon royalties.
A well-crafted franchise agreement will ensure that both you and the franchisor have clear expectations of each other. It is crucial that as a potential franchisee, you understand what’s involved in these contracts.
What are the different types of franchise agreements?
There are four different types of franchise agreements:
Single-Unit Franchise Agreement
Single-unit agreements provide the franchisee with the rights to own and operate a single location of a franchised business. This includes the specific terms, responsibilities, and operational guidelines for managing one franchise unit, along with associated fees and requirements.
Multi-Unit Franchise Agreement
Multi-unit franchise agreements enable the franchisee to establish and manage multiple locations of a franchised business within a designated area. The agreement includes terms for developing and operating multiple units, often accompanied by a timeline and financial obligations.
Area Development Franchise Agreement
With an area development franchise agreement, the franchisee is authorised to open and operate multiple units within a specific geographic region. The agreement details development timelines, performance benchmarks, and exclusive territorial rights to help the franchisee grow the brand within the area.
Master Franchise Agreement
This agreement allows the franchisee to act as a sub-franchisor within a particular territory. The master franchisee is responsible for recruiting, training, and supporting sub-franchisees while contributing to the brand’s growth in the region. The agreement also outlines the sharing of royalties and fees from sub-franchisees.
Are franchise agreements negotiable
Most franchisors will have standardised agreements with their franchisees to maintain consistency in the business model. However, negotiating franchise agreements is not off the table.
Franchisees will quite rightly want to secure terms giving them the best chance of financial success, as well as the freedom to operate their business.
Franchisors must consider the integrity of their brand, and maintain aligned business systems.
Naturally there will be wiggle room in some areas and non-negotiables in others. If you are in the process of signing a franchise agreement, professional legal advice will help in your negotiations.
“The franchise agreement is a two-way process. Franchisees must be confident they are in good hands, and franchisors must be confident the franchisee can run their business. Our franchise agreements are collaborations between both parties, which sets everyone up for success.”
How to get out of a franchise agreement
Most franchise agreements won’t allow you to terminate the contract early, but they may include clauses that can be triggered by certain events.
Breaching the terms of the contract, by either the franchisor or the franchisee, may provide the scope required for early termination. However, it is important to note that even breaches of the agreement may not provide enough justification to trigger an early termination.
Franchise agreements are legally binding contracts, so getting out of one will require a meticulous reading of specific wording within the agreement. In short, unless both parties agree to mutual termination, you should seek legal advice if you wish to get out of a franchise agreement.
Franchise agreement template
We use the British Franchise Association’s standard franchise agreement template for our contracts. You can download our template using the link below.
The gov.uk website also has a draft franchise agreement on their website.
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Thinking of franchising?
A franchise agreement is just the start of your journey. Discover the many benefits of joining a franchise, from leveraging an established brand to accessing ongoing support. Read our blog on The Advantages of a Franchise to learn how franchising can set you up for success!