Franchise agreements - know your rights and roles

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A proper understanding of the contract is essential for new franchisees - once a contract is signed, or activities commence based on the agreement, both parties are bound to its detail by law. Due to the many subjects covered in an agreement pertaining to a franchise operation, they can be very lengthy and cumbersome to read.

Consult a professional

The world of contract negotiation can seem daunting to many, especially those who don't have law degrees and financial skills.

Nicolas De Sousa, marketing director of Traditional Brands (parent to "Old Fashioned" Fish and Chips and Chingos Chicken franchise) advises, "When analysing a contract as extensive as a franchise agreement, we would recommend that potential investors utilise the assistance of professionals. There may be minor costs involved, but in the long run it will likely to save you a considerable amount of time and money."

"Although South Africa doesn't have an official legislative body focusing on franchising, there are still many applicable laws and acts which you will need to be familiar with. If there is any doubt or confusion, make sure you've cleared it up with trusted and knowledgeable sources before continuing. That being said, the contract should be easy to understand and written in plain language - it is not seen as fair practice for franchisors to produce contracts riddled with jargon, whereby one would need extensive professional legal assistance to even begin to understand it," De Sousa continues.

Be prepared

When soliciting the help of legal specialists, make sure you have gathered as much background information as possible before your first introduction. This will make their jobs easier, result in more efficient results and save time, which means you save money on fees. If you have access to other long-term and experienced investors in franchising, make the most of your relationship with them and incorporate any advice given by them into your strategy, provided they are indeed both experienced and knowledgeable.

For example, some of the continuing franchisor contractual obligation could include on-going skills development and updating of training, assistance with management and finance issues and general business guidance.

For franchisees, on-going duties could include agreements toward promoting and sustaining the brand image through the running of the franchise outlet, intellectual property agreements, access to accounts and important store information, quality control and training specifications, as well as termination and restraint of trade clauses.

Once-off obligations of the franchisor should include assisting a new franchisee with their store setup, providing the initial necessary operations systems and instructions, as well as primary training. Early obligations for franchisees could include payment responsibilities, "early out" cancellation provisions, as well as fair dealings and good faith agreements.

Misunderstandings can be costly

The implications of not having a comprehensive understanding of the contract in its entirety can be costly and frustrating, and most cases of disgruntled investors and bad relationships with franchisors are a result of a lack of proper understanding upfront.

"Whatever your expectations are, make sure that they are included in the contract or negotiated for before signing anything. Unfortunately, if an agreement is clearly documented in black and white, that is what will stand legally - no more, no less," warns De Sousa. "That being said, the CPA does provide far more protection to franchisees, as they are viewed as consumers in this type of agreement, than they previously had access to. Both parties need to ensure that all contracts are standing in compliance with the CPA's guidelines."

These principals apply to both the franchisor and the franchisee, so both parties will be held accountable for their respective obligations in the agreement.

"Maintaining a good relationship between all stakeholders is a crucial element when building a successful brand, and the appropriate level of mindfulness at the contract stage will go a long way in creating a positive and constructive partnership going forward, where all parties are fully aware of - and stand accountable for- their own rights and responsibilities," De Sousa concludes.