There is no secret: good business means good friends. And good business starts with a solid contract. Yet a poorly prepared contract – or worse, no duly signed contract at all – is a common mistake that still happens in the franchise industry.
In his article Jugement récent: Les risques de ne pas signer la convention de franchise avant l’ouverture de l’entreprise franchisée! (Recent Judgement: The Risks of Not Signing a Franchise Agreement before Opening a Franchise!), Jean H. Gagnon explains to franchisors the importance of signing a franchise agreement and other relevant documents before opening a franchise. If not signed, a contract is likely to be soon forgotten. Besides, a franchisee has little interest in signing a contract that imposes constraints.
For example, in one business case, the court ruled that a franchisor was to pay his franchisee close to $100,000 to settle a conflict that could have been avoided if the parties had signed a franchise agreement. Unnecessary hefty fees and lengthy legal disputes…
These contracts must be well crafted, reflecting the specific concept and unique nature of the franchisor. Copy-pasting from existing documents written by general practice lawyers simply won’t do. To avoid conflicts – and the legal costs they entail – as a result of missing clauses or ambiguity, your contract should be prepared by a lawyer who specializes in franchise agreements. Your existing contracts must also be reviewed.
Moreover, a contract that is too strict may drive away prospective franchisees. It is already no easy task finding good candidates, so better avoid scaring them off with something that could be easily fixed with the help of a good lawyer.
Another thing to keep in mind when drafting your franchise agreement would be the evolution of your business model over time. For example, if you plan to add a mini or super franchise concept, it would be appropriate to put it in writing and to give your franchisees options.
We would also recommend that you suggest your prospective franchisees to consult their own lawyers in order to make sure they understand the contract that they are about to sign. This will reduce the risk of conflicts in the future.
There are many law firms that offer franchise services around the world. We strongly recommend that you look for one near you. Also why not sign up for their newsletter or blog to stay informed of all the latest developments to help you avoid any pitfalls and costly mistakes?