edit this Components of the Franchise Agreement
Components of the Franchise Agreement
Accelaration of Royalties
The Frnchisor may acclearate to a maximum of 5 ear period of time using a 8% PVM factor and make due and payable the totoal royalities to have been paid for the remaining term of the franchise agreement if the franchisee defaults and prematurely terminates its agreement.
Advertising Obligations
How much should the have to spend of gross revnues on local advertising?
Should I provide templates to be used? Should the franschisee only be allowed to use the approved templates? Should the franchise only be allowed to use marketing materials developed by the franchisor.
The franchisee may only use marketing materials developed by the franchsor. If the franchisee wishes to tweak the marketing materials these changes must be approved by the franchsior before being used.
Arbitration and Mediation
In the case of dispute, dispute will be sent to Center for Public Resources-National Franchise Mediation Program or theogh the American Arbitration Association. This arbitration will take place in the county of the Franchsors home.
Audit by Franchsior
The franchosr has the right to audit the franchisees books and record. If revenues have been more than 3% of gross revenues underrrported the franchisee shall bear the cost of the audit. The franchsisor shall be allowed to audit the books once per quarter.
Choice of Law
The states laws of Arizona shall fovern the rights and obligations of the parties under the agreement.
Contingencies
Iif the franchise does not complete obtain the necessary financing, lease a suitable lacoation, complete the training or is not able to meet any other conditions then the franshor will give some money back.
How much money should I give back? Can I step this up so it becomes more and more costly with each step?
Should the funds be kept in escrow unitl the conitninegencies are met? Should I list the specific conitingencies?
Covenents Not to Compete
The franchise agrees to not operate a business similar to the franchise business (Art gallery, renting of Art) while a franchisee of for for a period of 5 years after the agreement expires or is terminated (posterm.) If the agreement is terminated or expires the franchcisee agrees to not franchsie a similr business for a period of 10 years. The covenent not to compete is still in effect if the franchise agreement expires and is not renewed, the franchise agreement is transferred to a franchisor approved buyer. The covenent not to compete is not still in effect if the franchise agreement teminates from a default by the franchisor.
How should “similar to the franchise business” be defined?
Customer Lists
A copy of the franchisees customer list and suppliers list must be given to and is the property of the franchsor. The franchisor will not use either lists to compete against the franchsie.
Should it be “the property of the franchsior” or just “be allowed to be used?
Customer Restictions
There are no restrictions to the type or class of customer with whom the franchsie can do business.
Death, Disability or Incompetenc
If the franchsiee dies, becomes disabled or incompetent what should happen? Needs to be addressed.
Default by Franchsor
The franchisor shall have 30 days to correct monetary defaults and 60 days to correct other defaults.
Should the ways of the franchsor might deault or breach of agreement be listed?
Should it state the grace period the franchsor has to correct the default?
Default by the Franchisee
The franchise agreement will automatically terminate because of insolvency.
The franchosr may immediately automatically terminate the franchise agreement because of a convicition of a felony on the par tof the franchise, the willful breachg of confidentiality, or willful breach of the noncompete covenanat.
termination shall be allowed on the behalf of the franchssie if after recievin gwritten notivce from the franchsor tey are not amended within 10 days for monetary defaults and 30 days for other defaults.
Escrow of Funds
Funds shall be held in escrow until the franchsor complete its preopening obligations.
Exclusive Territory
ADI-Area of Dominant Influence-
I want to give whole cities to the franchisee. But what if they do not rise to their potential? Can I set targets that if they don’t meet I am allowed to allow in a second franchise?
Exclusive territory shall exist within a 10 mile radius. The radius center are the cross roads of ___________ and _____________ in ____________, _____.
The franchise shall be allowed to conduct businees outside of the exclusive territory unless notifed by the franchsor that they are impeading upon another franchise’s exclusive territoty. The franchise may maket ouside of their trade area unless notified they are infringing upon another franchiseee trade area.
The exclusive territory dpends upon reaching a sales level of 60,000 in the first year, 100,000 in the second year, and 5% increase in sales for the following 8 years.
Force Majeure
No idea what it should state here.
Franchisors Right of Access
The Franchsor shall have the right to enter the franchsiee premise at any time and without prior notice for inspections.
Gross Revenue
Phantom Income shall be exluded for the driningiton of greoss revnes.
How should gross revenues be defined?
Guarnaty of Franchisee Obligation
Both the franchsee and the franchsiees spouse are personally obligated to the provsions of the document.
Initial Franchise Fee
The Initial Franchise Fee is kept forever by the franchsior if anybody goes into default.
Late Charges
The Fran shall be allowed to impose a late charge of 5% late fee after a 5 day grace period for any payments that include but not limited to royalty payments, advertising contribution.
Limitation of Claims for three years.
Minimm royalties, Advertising Contribution or Other Payments
A minimum royalty of $___ shall be paid by the franchise, regardless of sales.
National Accounts
If the franchise system sells its servies to national accounts the fran reserves the right to deal with these national accounts diretnly, even where a branch of the national account is lcated with the excluseive territory of the franchisee.
Obligations of the Franchise
Obligations of the Franchsior
Shall versus may
Option to Purchase by Franchisor
Not very nice, should I include?
If the minimum performance requirement is not meat the Franchsor has the right to purchase the franchisee business. The fracnsior also has the right to purchas ethe business on termination or expiration of the term. The price will be based on the fair market value on an ongoing business basis.
If the franchisee stays at thepremises afte contract the franchisee must deidentfiy the premises.
Purchases for inventory
How should I write it that they franchise can rent from whomever they want.
Relocation Rights
If loss of lease happens the franchsiee has a 30 priod if time to relocate the franchsie business withough forfeitn the franchise. Mimium royalties with abate during this period.
Renemwal fee
There are no renewal fees at the end of term of the contract.
Rennovatio of the Premise
Should I include? Must renovate every 5 years.
Reporting Requirment
The franchisee is required to supply quaterly finaccnail statements (balance sheets, profit and loss statement, and statement of cas hfflows.) The Franchsior reserves the right to request year-end fiancail sttemetns prepared by an independe certified public accountant. The franchise has 45 days and the end of each quarter and 90 days from the end of the year to supply thse statements. The statements may be be review –level statements or audited financial statements at the Franchsors request.
Right of First refusal by Franchsor
The frachsior has the right of first refusal to purchase the franchsiees business, if the frnachisee receives an offer from a third party, on the same terms and conditions as contained in the third pary offer. The franchisor time to excise the right of firs refual is a maximum of 30 dyas.
Right of First refusal by Franchise
The Franchise has the righ of first refual to purchase an additional franchise within any territories of a 30 mile radius. The Franchisee has 30 dyas to exeercixe the right of first refusal.
Term and renewal Rigts
10 years
Trademark
Transfer by franchise
Need first
A aiver of the franchsor right of first refusal
The buyesr assumption of the exiting franchise agreement or exution of the frnachosr latest version of the frnachise agreement
The paymen of a 5000 transfer fee.
The execution and delivery by the franchise of a general relase to the franchisor werheby the franchise realse the franchsor from any claims againt the franchosr.
Waiver of Punitive amage Claims
Waiver of trial by Jury
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