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A restaurant franchise agreement is a statutory contract between a franchisee and a franchisor. The franchisor owns the brand associated with the restaurant. At the same time, the franchisee is the person or entity that has been granted the privilege to run a restaurant using the franchisor's recipes, trademark, and business practices.
Advantages of a Restaurant Franchise Agreement
Here are some benefits of executing a restaurant franchise agreement.
- Brand Recognition: By joining a franchise agreement, franchisees can benefit from the established brand recognition of the franchisor, which can help to attract customers and develop a loyal customer base.
- Training and Support: Franchisees receive training and support from the franchisor, which can help ensure the success of their business.
- Proven Business Model: The franchisor has already developed a successful business model that franchisees can use in their location, saving them time and resources in developing their business plan.
- National Advertising and Marketing: The franchisor creates and implements national marketing and advertising campaigns, which can help attract customers and build brand recognition.
- Economies of Scale: Restaurant Franchisees benefit from the franchisor's size and purchasing power, which allows them to negotiate better prices on supplies and equipment.
Disadvantages of a Restaurant Franchise Agreement
Below are some key drawbacks of a restaurant franchise agreement.
- Loss of Control: The franchisee must adhere to the franchisor's standards and procedures, which can limit their ability to make independent decisions about their business operations.
- Fees and Royalties: Franchisees must pay fees and royalties to the franchisor, which can increase their overhead costs and reduce their profitability.
- Limited Flexibility: The franchisee may be required to use specific suppliers, equipment, and products specified by the franchisor, limiting their ability to make changes based on local market conditions.
- Territorial Restrictions: Franchisees are limited to a specific geographic territory, which can limit their ability to expand their business.
How to Draft a Restaurant Franchise Agreement
Below are the steps to follow when drafting a restaurant franchise agreement.
- Identifying Parties Involved: The initial stage of drafting a restaurant franchise agreement involves identifying the parties involved. The franchisor owns the restaurant concept and grants the franchisee the right to operate a franchise, while the franchisee will operate the franchise and pay a fee to the franchisor for using the brand name and system.
- Defining the Terms of the Agreement: Next, the agreement's terms must be defined, which includes specifying the duration of the agreement, the franchisee's operating territory, and any exclusivity clauses.
- Defining the Franchise Fee: The fee that the franchisee pays the franchisor for using the brand name and system is known as the franchise fee. This fee should be explicitly stated in the agreement and any additional royalties or fees the franchisee must pay.
- Outlining the Franchisee’s Obligations: The franchisee's responsibilities for operating the franchise, maintaining brand standards, and paying all required fees should be explicitly stated in the agreement.
- Defining the Franchisor’s Obligations: The franchisor's duties for providing support and training to the franchisee, maintaining brand standards, and protecting the brand's intellectual property should be explicitly stated in the agreement.
- Specifying the Intellectual Property Rights: The agreement should explicitly define the franchisor's intellectual property rights, including the use of brand name, logos, and proprietary systems or processes.
- Outlining Termination Provisions: The agreement should also contain termination provisions specifying the circumstances under which the agreement can be terminated, notice requirements, and the parties' obligations upon termination.
- Including Relevant Provisions: Depending on the franchise's particular needs, the agreement may require additional provisions, such as advertising, marketing, or other crucial aspects of franchise operation.
- Consulting with Legal Counsel: Legal counsel should be consulted when drafting a restaurant franchise agreement to ensure that the agreement complies with all applicable laws and regulations and provides adequate protection for both parties.
Primary Parties in a Restaurant Franchise Agreement
The franchisor and franchisee are the two main parties involved in a franchise agreement, although third parties such as franchising lawyers and insurance companies may also be involved. Below are the primary principles that apply to the core of a franchise agreement.
Entities or individuals who license and sell their franchise rights to a franchisee are known as franchisors. They sell the franchisee's branding, licensing, and intellectual property rights. The franchise being sold can be a physical or online business or both.
Franchisees purchase franchise rights from franchisors and are usually small business owners with entrepreneurial experience in the industry. As a franchisor, selecting franchisees who can adhere to the standards and procedures you have established is important.
Why Hire a Lawyer for a Restaurant Franchise Agreement
Below are a few compelling reasons why seeking legal assistance with a franchise agreement is crucial:
- Cost-Effective: Franchise lawyers typically charge a flat fee or an hourly rate agreed upon beforehand. This payment plan allows franchisors to anticipate their legal expenses instead of paying a large upfront fee. Engaging an attorney's services is always a wise investment since they provide high protection.
- Worthwhile Investment: If you are serious about franchising your business, it is essential to have a legally binding agreement that reflects your values. Experienced businesspeople can easily detect incomplete or inadequate contracts, harming your chances of attracting the right individuals. Investing in a professional and well-crafted franchise agreement can increase your chances of securing aligned individuals.
- Building Relationships: Many people only contact an attorney when a problem arises. Unfortunately, it is often too late to address the issue by this point. By retaining an attorney to create your franchise agreements, you establish a professional relationship with a legal expert who understands your business and whom you can contact at any time.
- Protecting Your Rights: Your franchise attorney can also review new and existing contracts as you draft and receive them. Busy managers can find legal reviews and document management to be time-consuming tasks. You can delegate these responsibilities to your legal team, allowing you to focus on other aspects of your business.
- Assistance with Negotiations: Negotiating is not something franchisees and franchisors frequently do. Although some familiarity with the process is necessary, having an experienced professional can improve your results. Consider involving an intellectual property or franchising lawyer in your negotiation discussions.
Key Terms for Restaurant Franchise Agreements
- Territory: The franchisee is given the sole geographic area to operate the franchise. It safeguards the franchisee from competition from other franchisees of the same brand.
- Franchise Fees: The franchisor charges a fee to the franchisee for the right to use the brand name, trademarks, and business model. These include an initial fee, ongoing royalty payments, and advertising fees.
- Training and Support: The franchisor is responsible for providing initial and ongoing training and support to the franchisee. It can include training on the operation of the restaurant, marketing and advertising, and accounting practices.
Final Thoughts on Restaurant Franchise Agreements
A restaurant franchise agreement is a complicated legal document establishing the terms and conditions of an association between a franchisor and a franchisee. The contract covers everything from using the franchisor's trademark and branding to running and managing the franchise.
The franchisor offers the franchisee support, training, and a proven enterprise model, while the franchisee is responsible for following the franchisor's rules and guidelines. While franchise agreements offer several benefits to both parties, such as increased brand recognition, profitability, and a lower risk of failure, they also come with certain risks and limitations. In addition, franchisees should carefully review the terms of the agreement and seek professional advice before signing any contract to ensure they fully understand their rights and obligations.
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Meet some of our Restaurant Franchise Agreement Lawyers
November 16, 2021
Attorney Yu represents clients in business and real estate transactions and has successfully handled more than 200 cases. She has experience in corporate law, including forming legal entities, employment law and workers’ compensation law matters pertaining to wage and hour violations, industrial injuries, misclassifications, and other employment-related torts and contracts. Attorney Yu works with employers to address employee relationship issues, develop effective policies and craft employment agreements. Attorney Yu regularly advises clients on the legal and business aspects of potential investments, ongoing business operations, debt collections, shareholders and partners disputes, business purchase agreements, risk assessment, intellectual property disputes, and potential contract disputes. She regularly handles real estate law matters such as landlord-tenant disputes, lease agreements, buy-sell disputes, title disputes, and construction disputes. She also has substantial experience settling debts, and she drafts, reviews and negotiates settlement agreements. Attorney Yu conducts extensive legal research and provides on-point legal advice to both corporate and individual clients.
November 17, 2021
Over 30 years of experience practicing commercial real estate and complex business litigation law.
January 20, 2022
Dual Qualified New York Attorney & Enrolled NZ Barrister & Solicitor
November 12, 2021
I am an experienced in house counsel and have worked in the pharmaceutical, consumer goods and restaurant industry. I have experience with a variety of agreements, below is a non-exhaustive list of types of agreements I can help with: Supply Agreements Distribution Agreements Manufacture Agreements Service Agreements Employment Agreements Consulting Agreements Commercial and residential lease agreements Non-compete Agreements Confidentiality and Non-Disclosure Agreements Demand Letters Termination notice Notice of breach of contract My experience as in house counsel has exposed me to a wide variety of commercial matters for which I can provide consulting and assistance on. I have advised US, Canadian and International entities on cross-functional matters and have guided them when they are in different countries and jurisdictions as their counterparties. I can provide assistance early on in a business discussion to help guide you and make sure you ask the right questions even before the commercial agreement needs to be negotiated, but if you are ready to put a contract in place I can most definitely help with that too.
November 16, 2021
Jeff Colerick has been practicing law for over 30 years and has devoted his professional career to providing clients with intelligent representation and personal care. His experience as a lawyer involving complex matters has resulted in a long history of success. Jeff has built a practice based on a deep understanding of real estate assets and corporate activities. He combines his industry knowledge with a practical and collaborative approach to problem solving. Jeff’s client relationships are strong because they are built on mutual respect. Jeff talks the language of real estate and understands that it is a vehicle to deliver your business strategy. Jeff provides practical, responsive, and strategic advice related to real estate acquisition, construction, leasing, and sale of a wide range of real property types, including office, retail, medical, industrial, industrial flex-space, mixed-use condominium, multifamily and hospitality. As leader of the Goodspeed Merrill real estate practice group, Jeff represents clients with commercial and residential transactions, purchases and sales, land acquisition and development, real estate investment and financing, financing liens and security interests, and commercial leasing and lease maintenance, including lease enforcement support and advice. The firm represents clients in matters concerning construction, lending, developers, contractors and subcontractors, cell site leasing, property and boundary disputes, common interest community law, and residential condominiums and planned communities.
November 16, 2021
Harrison Kordestani is an executive with over twenty-five years experience in entertainment and media, energy, technologies, and start-ups. Mr. Kordestani has also developed a specialized legal and strategic consulting practice representing select entertainment, oil and gas, mortgage lending, and technology start-up clientele. He is also deeply passionate about new technologies and has also actively worked in building companies in the video-on-demand, wearable tech, information of things, demand prediction and app-marketing spaces. As an attorney, Mr. Kordestani's focus has been on transactional drafting and negotiation and providing ongoing legal counsel, corporate compliance, and contract interpretation to numerous private individuals as well as companies in varied fields.
November 18, 2021
Abraham's practice focuses on counseling emerging group companies in the technology and other commercial agreements, and assisting equity financings (specifically venture capital).