Franchise Agreement Cost

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What does a franchise agreement cost? This is a question that a business owner may ask if they are thinking about expanding their company and establishing a franchise. So let’s explore this question and review some general information about franchise agreements.

How Much Does a Franchise Agreement Cost?

A franchise agreement is a legally binding contract between an established franchisor and a franchisee. The entity is granted the right to establish a franchise operation. Essentially, the franchisee purchases the right to run a company under the franchisor’s already established operating system.

The franchise agreement lays out how the franchisee will operate and includes essential information like:

  • The use of trademarks
  • Business systems
  • Operating manuals
  • Products and services offered

Franchise agreements are used to define the rights and obligations of the franchisor and the franchisee and ensure that the franchisee operates up to the franchisor’s standards.

A franchise agreement is an essential legal document if a business owner wishes to license their business as a franchise. Many companies will seek the help and advice of a franchise agreement lawyer to help draft their contract. Therefore, this agreement must be prepared correctly and abide by all applicable franchise laws.

Based on ContractsCounsel’s marketplace data, the average cost of a project involving a franchise agreement is $1,057.

The cost of a franchise agreement will vary depending on several factors. For example, the length and complexity of the document and the geographic location of the business and the lawyer will affect the cost of legal services.

What’s Typically Included in a Franchise Agreement?

Franchise agreements will differ based on the business and the industry. Still, every franchise agreement must include certain elements to make it legally binding and enforceable.

Important clauses that every franchise agreement must have include:

  • The Grant of Franchise Rights and Term. This grants the franchisee the right to establish a franchise location and the license to use the franchisor’s trademark, dress, and business systems.
  • Development Obligations. The franchisee will be obligated to establish a franchise location within a designated period.
  • Training. There will be initial training and ongoing training that the franchisor will provide to teach the franchisee how to run the business.
  • Territorial Rights. Territorial rights are often included in a franchise agreement to protect the franchisee. This will prohibit the franchisor from allowing other franchises to open in the same territory, creating competition.
  • Operating Procedures. The franchisee will be required to follow specific operating procedures laid out by the franchisor. Some operating procedures include what services and products the franchisee can offer, how trademarks are used, and how the business will run the day-to-day operations.
  • Initial Fees. To establish a franchise, the franchisee must pay the franchisor to use the already established business system. The franchise agreement must include the fees and how they are to be paid. Fees can consist of software license fees, initial inventory fees, and purchases.
  • On-Going Fees. In addition to initial fees, franchisees will also have to pay ongoing fees. These will also need to be defined in the franchise agreement. The royalty fee is the most common ongoing fee and is typically paid to the franchisor monthly.
  • Marketing Fees and Obligations. Some franchise agreements require the franchisee to pay any marketing fees to the franchisor. In addition, it is common for franchisees to pay into a “brand development fund” to which all franchisees contribute.
  • Restrictive Covenants. A franchisor must protect the confidentiality of a franchise system so that the franchise will include restrictive covenants like non-compete agreements. This will prevent a franchisee from creating a competing business.
  • Legal Rights and Jurisdiction. Every state has laws that govern franchises and franchise agreements. The state where the franchisor has its corporate headquarters will be the governing law for the agreement.
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Types of Franchise Agreements

There are several different types of franchise agreements. Suppose you don’t know which agreement to use. In that case, you should consult with an experienced lawyer to help you choose the best agreement for your situation.

The seven most common franchise agreements include:

  1. Master franchise agreements
  2. Product distribution franchise agreements
  3. Job franchise agreements
  4. Conversion franchise agreements
  5. Investment franchise agreements
  6. Business format franchise agreements
  7. Area development agreements

Master franchise agreements are the most commonly used and are typically appropriate for most businesses.

Examples of Franchise Agreement Projects

Franchise Agreement Drafting Service

Franchise agreements are the most important documents for a franchisor because it governs the relationship between the franchisor and the franchisee. This agreement grants the franchisee legal rights and entrusts them with responsibility and obligations. Therefore, this agreement must be professionally drafted by an experienced lawyer. A franchise agreement lawyer will know which agreement best suits your business and what clauses need to be added to protect your company.

Drafting services generally include a consultation, the document's drafting, and a final consultation to go over the contract and determine if any revisions are required.

Franchise Agreement Review Service

The franchise agreement is also the most critical document for a franchisee. This contract dictates how the franchisee can run their franchise, the fees they must pay, and other rules and provisions they must abide by. Therefore, it is common for a franchisee to hire their lawyer to review the contract before signing.

A lawyer can go over the contract to ensure it is fair and protects the franchisee’s rights. They can also explain any terms the franchisee may not understand.

Drafting Franchise Agreement Costs

Drafting a franchise agreement comes with costs because it requires the time of a licensed lawyer to complete the project.

ContractsCounsel’s marketplace data shows the average franchise agreement drafting costs to be $1,083 across all states and industries.

Franchise Agreement Review Costs

Hiring a lawyer to review a partnership agreement will also come with legal fees. The lawyer will read over the agreement to analyze the terms and consult with the client.

ContractsCounsel’s marketplace data shows that the average franchise agreement review costs $1,031 across all states and industries.

How Do Lawyers Charge for Franchise Agreements?

Hourly Rate for Franchise Agreements

Lawyers in all legal fields commonly use hourly rate fee agreements. Using this fee structure, a lawyer will bill a client for the number of hours spent working on a project at a set hourly rate. This fee structure ensures that a lawyer is compensated for all work done for a client.

ContractsCounsel’s marketplace data shows the average hourly rate for a franchise agreement lawyer ranges from $300 - $450 per hour.

Flat Fee Rate for Franchise Agreements

Flat fee billing structures are becoming popular for contract drafting projects like franchise agreements. An attorney quotes a client a flat fee to complete the project when using this fee structure.

The benefit of flat fee billing is that it provides the client with the total cost of legal fees. However, it is important to ensure the client knows what’s included with the fee before starting the project because additional services like consultations and revisions may not be covered.

ContractsCounsel’s marketplace data shows that a partnership agreement's average flat fee rate costs $1,057.

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