Encouraging collaboration through franchise agreements

Whether you are looking to start a new business venture by collaborating with an already established brand or are looking to scale-up your own business, franchising can be a viable option.

Joe Creasor, solicitor in the company commercial team at Wake Smith recently successfully negotiated a franchise agreement renewal on behalf of his client and with the franchisors’ representative.

Understanding both parties needs in these circumstances and appreciating that a franchise agreement is a document to encourage collaboration ensured the client was able to secure advantageous terms for his business.

Joe looks at franchising agreements and the factors that must be considered.

This article covers:

• What is a franchise agreement?
• The key parties to a franchise agreement
• Key aspects of a franchise agreement
• Your next move?

What is a franchise agreement?

An essential legal document outlining the terms and conditions between a franchisor and a franchisee.

A franchise is in essence a framework for a business. In a franchise agreement, the franchisor grants the franchisee the right to operate a business that uses the franchisor’s trademarks, systems, products, services, and other proprietary information.

The key parties to a franchise agreement

The key parties include:

• The Franchisor – this is the person(s) or company who owns and controls the original idea for the business and its associated intellectual property.
• The Franchisee – this is the person(s) or company who will be operating an independent outlet of the business, usually in a specified location, which will be set out in the franchise agreement.
• The Individual – in some instances, a franchise agreement will include an ‘individual’, this is usually the case when the franchisee is a company and the franchisor requires the owner of the franchisee company to personally give obligations for the success of the business.

As the Franchisor will have developed the original business, building up goodwill and a positive reputation as well as developing certain IP or business processes, they will be keen to ensure that their business is protected and that there are restrictions on what a franchisee may do.

To ensure that the rights and wishes of both the franchisor and the franchisee are protected, the parties will enter into a franchise agreement.

Key aspects of a franchise agreement

These include:

Obligations of the parties – it is important to set out in the agreement what obligations apply to each party. These will include initial obligations of the franchisor such as assistance in initial set up and then continuing obligations of both parties.

Training – the franchisor will want to ensure that quality and consistency is being applied throughout the business and therefore will often require that franchisees are trained sufficiently to provide a business function which mirrors the franchisor’s business.

Duration and Territory – how long the franchise agreement will continue in effect for and in which location it can operate are key consideration for both the franchisor and franchisee. 

Onward sale of the franchise business – The franchisee will want to ensure that if they are operating a successful franchise business that they are able to sell this on and benefit from the work they have put into building their franchise. 

Step in rights – a franchisor will want to know that if things are not going as planned or something happens to the franchisee, which means they can no longer operate the business, that they can step in and take back control of the franchise business. However, a franchisee will want to ensure that if due to illness or death they are incapacitated, their incapacity does not prevent their personal representatives from exercising a right to an onward sale or sale back to the franchisor. 

Your next move?

It is important whether you are a franchisee or franchisor that you see professional advice when entering into a franchise agreement.

The duration and obligation on both parties can be far reaching and, in some instances, leave the individuals personally liable.

Similarly, the franchisor, having developed IP and processes will want to restrict and control how their brand is used and portrayed by any third-party franchisee.  

For further information please contact Joe Creasor at Wake Smith Solicitors on 0114 224 2188 or email [email protected]

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Published 31/03/2025