Franchise Contracts Tend to Be Unilateral and in Favor of the Franchisor: What You Need to Know

Franchise agreements are legal documents that outline the terms and conditions of the partnership between a franchisor and a franchisee. While these contracts are meant to protect both parties, it is important to understand that franchise contracts tend to be unilateral and in favor of the franchisor.

What does it mean for a franchise contract to be unilateral?

A unilateral contract is a type of agreement in which one party, in this case, the franchisor, has all the power. This means that the franchisor has the ability to dictate the terms and conditions of the contract. The franchisee, on the other hand, has little or no bargaining power and cannot negotiate the terms of the agreement.

Why are franchise contracts unilateral?

Franchisors create standard franchise agreements to maintain consistency across their franchise system. This means that all franchisees are required to sign the same contract, which includes terms and conditions that are in favor of the franchisor. Uniformity is important for franchisors because it helps to maintain the quality of their brand and ensures that all franchisees adhere to the same standards.

What terms and conditions are typically in favor of the franchisor?

Franchise agreements include clauses that protect the franchisor`s interests, such as:

1. Royalties – Franchisees are required to pay royalties to the franchisor. This fee is typically a percentage of the franchisee`s gross sales. The franchisor uses these funds to support the franchise system.

2. Territory – Franchise agreements often stipulate a specific geographic area where the franchisee can operate. This protects the franchisor from having multiple franchisees competing with each other.

3. Control – Franchisors have the right to control the products and services that franchisees offer. They can dictate everything from pricing to the design of the store.

4. Termination – Franchisors have the right to terminate the franchise agreement if the franchisee fails to comply with the terms and conditions of the contract. This means that the franchisor can end the partnership at any time, without notice.

What should franchisees do before signing a contract?

Franchisees should thoroughly review the franchise agreement with the help of a lawyer before signing it. Franchisees should also do their due diligence and research the franchisor and its franchise system. This includes speaking with current and former franchisees to understand their experiences with the franchisor.

In conclusion, franchise contracts tend to be unilateral and in favor of the franchisor. Franchisees should be aware of this and take the necessary steps to protect their interests before signing a contract. It is also important for franchisors to ensure that their franchise agreements are fair and reasonable, as this will help to build a successful and sustainable franchise system.