A franchise agreement sets out the basic principles governing the relationship between franchisee and franchisor. For this reason, it is of great importance to both parties.
Franchising has become an established practice in many industries. It involves the franchisee running its own independent business and bearing the associated economic risks. At the same time, the franchisee uses the uniform branding of the typically already well-known franchisor in return for payment of a fee. This relationship gives rise to rights and obligations for both parties, and these are laid out in the franchise agreement. We at the commercial law firm GRP Rainer Rechtsanwälte note that experience shows that the contractual provisions ought to be as comprehensive and detailed as possible to ensure minimal room for interpretation and a stable legal basis.
Due to the fact that there is normally a gap in knowledge that favours the franchisor, it is generally viewed as the stronger contracting party. As a result, it is subject to duties of disclosure vis-à-vis its contractual partner. While the relevant requirements have yet to be fleshed out by the legislature, the franchisor cannot give the franchisee false expectations, e.g. by presenting completely unrealistic economic figures. This kind of approach can potentially lead to the franchisee bringing claims for damages.
The parties largely have free reign when drafting the franchise agreement; there are no clear legal requirements. Instead, the franchise agreement is a type of mixed contract that particularly includes elements of a purchase agreement, a lease and a loan agreement. Examples of important aspects that should absolutely be regulated by the agreement are the duration, territorial protection and marketing. In addition, the conditions pertaining to the cessation or termination of the contractual relationship should also clearly defined.
When it comes to franchise law, rules and regulations from a variety of different legal fields need to be observed. These include commercial law, competition law, antitrust law and employment law, among others. In light of these complex requirements, it is good idea to obtain comprehensive legal advice from a single source. The contracting parties’ opportunities and expectations ought to be realistically assessed and their rights and obligations precisely defined. Nevertheless, it is always possible for difficulties to arise over the course of the partnership. Lawyers who are experienced in the field of franchise law can assist in overcoming such problems and advise on matters ranging from drafting agreements to terminating the franchise relationship.
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