Franchising

A franchise operation is defined as a contractual relationship between a franchisor and franchisee in which the franchisor offers or is obliged to maintain continuing interest in the business of the franchisee in such areas as know-how and training.

The franchisee operates under a common trade mark, format or procedure owned or controlled by the franchisor, under which the franchisee has or will make a substantial capital investment in his business from his own resources.

1. Product and trade mark/name franchise – A product or trade mark franchise is the simpler form of franchising in which the franchisee is only entitled to use the franchisor’s name or trade mark and product.
2. Business format franchise – In a full business format franchise, the franchisee uses the franchisor’s entire business concept, which includes the name, trade marks, copyright, goodwill, know-how, trade secrets, trade dress and similar intellectual property.

The franchisor’s obligations are divided into two:

1. Initial obligations – The franchisor will assist with the setting up of the premises or outlet, furnish the franchisee with the operations and procedures manual, disclose the entire franchise system to the franchisee and train the franchisee.
2. Ongoing obligations – The franchisor’s ongoing obligations include additional necessary training from time to time and also to assist with problems, management and to provide guidance, in addition to the ongoing management and development of the franchise system.

The obligations of the franchisee are usually fairly extensive. These should include provisions that the franchisee should operate the franchise strictly in accordance with the franchise system, usually as set out in the operations manual. The operations manual should include not only standard terms and conditions i.e. pay sums timeously but provisions to the effect that the franchisee should enhance and promote the intellectual property, goodwill and reputation of the franchise at all times. In addition, the franchisee should also advertise and promote the franchise when appropriate.

These provisions are essential to ensure a common brand, identity, consistency and quality of the Franchise. The franchisee should also in this regard allow regular inspections so as to ensure quality control.

A Franchise Agreement is a sophisticated form of Licence Agreement. The core of franchising lies in the rights and obligations of both parties and understanding the legalities of what you are getting involved with is perhaps the most crucial element to choosing the franchise route. Setting up a franchise system or obtaining advice on a franchise agreement and on intellectual property are complex areas of law.

Once you’ve made your decision you need to consult with our expert franchise attorneys who have experience in business and contract law and will ensure that the franchise contract is fair to both parties. Whether you are pursuing a wish to learn how to franchise your business or need assistance on assessing the viability of a franchise model and contract, speak to our experts today.

Our Franchising team is able to assist with all legal aspects related to franchising agreements and litigation.