When we decide to take franchise of any brand, the next step is to decide the structure, ownership, roles and responsibilities of franchisee and franchisor. Based on the requirement, purpose and nature of works, different types of franchise agreements could be entered into as follows:
Development agreement is executed between franchisor and franchise or any other party to develop store or outlet. The development agreement gives franchise/other party an exclusive right to do all the necessary things connected with building and development of store. Once the store or outlet is developed, franchisee agreement is entered into franchisor and franchisee to give rights to franchise to use brand, trademark or technology of franchisor.
Once the store, outlet is completely built up, a franchisee agreement is entered into between franchisor and franchisee. Franchisee agreement gives exclusive rights to franchise to operate the store for a particular period of time. It is important to mention exclusivity term in the franchisee agreement so that no other stores of the same brand are opened within a certain distance from the store or outlet for which the franchisee agreement is executed.
Some of Important elements of Franchisee agreement are as follows:
- Initial Fee
- Initial Investment
- Details of products or services to be offered
- Franchisor Obligations
- Franchisee Obligations
- Exclusivity Clause
- Trademark, Copyrights and patents
- Period of agreement
- Franchisee fee
- Termination of Agreement
- Arbitration Clause
- Force Majeure Clause etc.
Sub-Franchisee Agreement is an agreement which is created by franchisee with third party to operate store or outlet for which he has taken franchisee from the franchisor. Sometimes, its mentioned in franchisee agreement to take prior permission from the franchisor before giving sub-franchisee to any third party. Sub-Franchisee is drafted like same as franchisee agreement but the only difference is it is entered into between franchisee and the third party.
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