Drafting of the franchise contract(s)

To establish a successful franchise organization, legally solid franchise agreements are essential. Consider the following:

1. Non-Disclosure Agreement (NDA) to facilitate open discussions with a candidate during the initial selection phase.
2. Pre-Contractual Information Document to provide franchisees with all the necessary information so they can make an informed decision about joining the franchise formula.
3. Data Processing Agreement to outline the terms regarding the processing of personal data, such as that of end customers.
4. Franchise contract that outlines the responsibilities, obligations, and liabilities of both the franchisor and franchisee, as well as all other important terms of the franchise collaboration.

Non-Disclosure Agreement

You have a successful concept that you want to expand further through franchising. However, you do not want the secret to your business success to become public. Therefore, it is customary to have a prospective franchisee sign a non-disclosure agreement during the first stage of the selection process to protect sensitive business information. Signing the NDA allows for deeper discussions about the formula, as both parties will likely share sensitive information quickly. The NDA serves to prevent interested parties from misusing the confidential information provided and passing it on to third parties.

Pre-Contractual Information Document

When discussions with a prospective franchisee go well and they express a desire to join your franchise formula, it is time to provide a Pre-Contractual Information Document.

The Pre-Contractual Information Document must describe at least the following topics:

1. The franchise contract to be signed, including attachments.
2. An overview of all fees, surcharges, and other contributions, along with explanations of their purpose.
3. An overview of the investments the new franchisee will need to make.
4. Information on the manner and frequency of franchise meetings.
5. Contact information for the representative body of franchisees (if available).
6. Information about the financial health of the franchisor.
7. Financial information about the intended location where the new franchisee will operate, or information on comparable franchise locations.
8. Any other potentially relevant information for the candidate franchisee.

After providing the Pre-Contractual Information Document, a standstill period of four weeks commences. During this phase, the prospective franchisee can take concrete steps towards starting their franchise business. This may include preparing a financial budget, writing a business plan, and conducting market research for the relevant territory using the provided information. The prospective franchisee may also seek external advice or intern with the franchise formula. During this period, according to the Franchise Act, no changes may be made to the detriment of the prospective franchisee, and they may not take any actions that would prevent them from withdrawing from the franchise agreement (such as signing a lease agreement).

As a franchisor, you can further assess whether the prospective franchisee indeed fits within the franchise formula during this period. In other words, this period further clarifies whether there is a true match with the franchise organization, offering a final opportunity to part ways before committing to a long-term mutual commitment in the form of the franchise agreement.

Data Processing Agreement

The data processing agreement is usually part of the franchise agreement and is required under the General Data Protection Regulation (GDPR). In a franchise relationship, it is important to establish the purposes for collecting and processing certain personal data. For example, if customer data is collected by a franchisee, which the franchisee and franchisor use for marketing purposes, a data processing agreement must be in place. The agreement thoroughly outlines the mutual responsibilities, obligations, and liabilities concerning the processing of personal data.

Franchise Contract

The most crucial agreement in the franchise collaboration: the franchise contract. While trust is essential in franchise partnerships, it is nevertheless necessary to make solid written agreements. The franchise agreement is a static document. Typically, for a period of five years, it outlines the responsibilities, obligations, and liabilities between the franchisor and franchisee. Topics that may be addressed include:

• Definition and explanation of the formula
• Implementation of the franchise collaboration
• The service area
• Proper use of the formula and trade name
• Explanation on how to use the franchise manual
• Agreements on the process and obligations regarding formula changes
• Appearance and other guidelines that a location must meet (if applicable)
• Innovation obligation of the franchisor
• Marketing
• Purchase terms
• Quality management
• Independent entrepreneurship of the franchisee
• What to do in case of third-party infringement on franchisor rights
• Compensation system and payment terms
• Guidance, education, and training
• Accounting and administration
• Insurance
• Duration of the franchise agreement
• Conditions for extension
• Transfer of the business
• Process and grounds for early termination
• Consequences of termination
• Confidentiality and non-compete clause
• Franchise meetings (such as franchise council)

The extent to which agreements regarding these topics should be detailed in your franchise agreement depends on how rigid or flexible your franchise organization is set up. To allow for flexibility and development within the formula, the detailed elaboration of certain topics often refers to the franchise manual. Thus, the franchise manual, thanks to the franchise agreement, also gains some legal significance. Without a solid franchise agreement, it is practically impossible to establish a sustainably successful franchise organization.

No franchise agreement is standard

As you can see, the topics to be covered in a franchise agreement are quite diverse. We are often asked if we can provide a sample franchise agreement. We also sometimes see franchisors picking a sample franchise agreement from the internet and making their own modifications. These franchise agreements are often incomplete, posing unnecessary risks to the franchise formula. It's not uncommon for franchisors to be found lacking because they fail to support franchisees adequately based on standard provisions.

Seventy percent of the franchise agreement is standard. However, the remaining 30% is crucial. This 30% is the customization that provides the right protection for the concept. This allows you, for instance, to hold franchisees accountable for their performance if they are underperforming relative to the formula. Every concept is unique, which is why every franchise agreement must also be unique. With a standard agreement or incorrect modifications, you risk having agreements improperly documented. A good franchise agreement is essential for a successful franchise collaboration. Always have your franchise agreement(s) drawn up by a specialist.

Strong legal foundation for your franchise collaborations

Every concept and cooperation has unique elements. However, the aforementioned agreements are essential as a foundation for a well-functioning franchise organization. Therefore, we develop these various legal documents tailored to your needs so that you can successfully grow with your franchise formula!