Do Business Well

It is not at all unusual for newcomers to franchising to go into a state of shock when they first realise the complexity of a typical franchise t agreement. But whilst efforts to draft franchise agreements in plain English, thereby enhancing their user-friendliness, are laudable, attempts to keep them “short and sweet” are generally doomed to failure. The reason for this is that unlike other legal agreements that will deal with one specific transaction, a franchise agreement has to cover an entire portfolio of commercial arrangements of varying complexity that may appear to be almost unrelated, yet, by virtue of the fact that they are part of one specific franchise arrangement, they are in fact closely intertwined.

To illustrate this point, let us look at just one of the areas that are dealt with in a typical franchise agreement, namely the grant of the franchise.

The Grant

A franchise is granted, never sold. Typically, franchisees will be licensed to operate one unit of the franchise, either at a specific address or within a clearly defined territory, using the system’s brand name(s) and corporate mage, sometimes known as the get-up, as well as its know-how as described in the franchise agreement and the operations and procedures manual. Continue Reading »

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Although relatively rare, franchise agreements do exist that remain valid for an indefinite period. Such agreements usually contain a minimum performance clause but this is difficult to implement. Whilst sales targets can be linked to a cost-of-living index or similar indicator, this will not always reflect changes in the market that may be difficult if not impossible to project with any degree of certainty.

Territorial rights

The agreement will define the territory for which the franchise has been granted. This may be limited to a specific address (No. 125 Bond Street, Newtown, Gauteng), a clearly defined area surrounding a particular location (a radius of 10 kilometres measured from the Johannesburg City Hall) or an entire territory (the area encompassing the municipalities of Germiston and Boksburg). Continue Reading »

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