Franchise agreement

A franchise agreement is a legally binding contract that governs the collaboration between a franchisor and a franchisee.

Glossary
Franchise agreement

Explained – what is a franchise agreement?

A franchise agreement is an arrangement under which the franchisor grants the franchisee the right to use its business concept, trade mark and know-how. The agreement regulates, among other things, the parties’ rights and obligations, fees and the term. Franchise agreements are common in retail, restaurant operations and the services sector. There is generally no standalone franchise statute; instead, the framework is shaped by general contract law and competition law. Engaging a franchise agreement lawyer early helps ensure the agreement reflects the operational model and risk allocation.

When does a franchise agreement become relevant?

A franchise agreement becomes relevant when a business plans to scale by allowing others to operate under the same brand and business model. This can occur when an established chain opens new units via external entrepreneurs, or when an entrepreneur prefers to adopt a proven concept rather than starting from scratch. A franchise contract may also need to be renegotiated, assigned or terminated, including scenarios involving an early termination clause and written notice termination requirements.

Illustration of a franchise network, showing a central franchisor connected to multiple franchise locations, representing a franchise agreement and business expansion.

Key considerations for a franchise agreement

To secure a sustainable relationship between franchisor and franchisee, the agreement must be clear and balanced. Below are key points to consider.

Specify the scope and permitted use of the trade mark and concept, including any know-how licence
Regulate fees and remuneration models, for example the initial franchise fee and ongoing royalty
Set out training and support obligations to be provided by the franchisor
Describe requirements for premises, equipment and quality assurance
Regulate marketing contributions and advertising strategies
Define the contract term and conditions for renewal
Include non-compete clauses and confidentiality provisions
Regulate dispute resolution and governing law

A well-drafted franchise contract reduces the risk of disputes and supports long-term success for both parties. A franchise agreement lawyer can assist with franchise contract review to align obligations with the operational realities.

Franchise agreement

Why is a franchise agreement important?

A franchise agreement is essential to create clarity and legal certainty in the parties’ cooperation. Without a well-written agreement, ambiguities may lead to conflicts over, for example, fees, marketing or quality requirements. A thoroughly prepared agreement ensures both parties share expectations and understand their commitments.

For the franchisor, it protects the brand and ensures the concept is applied consistently across locations. For the franchisee, it guards against unilateral changes and provides the structure and support needed to operate within clear parameters, including a franchisor–franchisee agreement that is workable in practice.

From a business perspective, a robust franchise agreement underpins sustainable growth, profitability and mutual trust. Clear drafting also enables controlled and consistent expansion—whether for a retail or a restaurant franchise agreement—thereby strengthening the brand in the market.

A franchise agreement should address, among other things, the scope of the licence, fees (including any initial franchise fee), training, marketing, quality standards and dispute resolution. A franchise agreement lawyer can help review franchise agreement terms for balance and enforceability.

It should be signed before the franchisee commences operations, ideally after both parties have carefully reviewed the terms and the business plan, including any early termination clause.

A franchise agreement typically covers a complete business concept with ongoing support, whereas a licence agreement grants the right to use a specific trade mark or intellectual property only.

Risks vary, but common ones include:

Unclear contractual terms
Unbalanced fee structures
Insufficient support from the franchisor
Terms that prevent continued operations following termination
Inadequate control over use of the brand

A legal review helps identify risks and imbalances. Expert legal advice can ensure the parties’ rights and obligations are properly formulated, and a franchise agreement lawyer can draft franchise agreement provisions that are practical and enforceable.

Termination is governed by the contract terms and may require written notice within a specified period. Often there are special rules for early termination, for example compensation obligations or the return of equipment, set out in the written notice termination clause of the franchise contract.