What is the Franchise Agreement?
How to define the franchise agreement?
The franchise contract is a contract that is not named by law, so its definition results from the practice and the qualification that the judges ended up giving it.
There are 3 main elements to remember: the franchise agreement is the provision of know-how, that is to say a set of practical knowledge proven by the franchisor, identified in an operating manual, not immediately accessible without research effort and providing an advantage over the franchisee’s situation, if he had remained outside the network.
It is a contract that provides a brand, therefore a sign of customer attraction, to which we generally add architectural concepts, graphics that allow the global recognition of the commercial offer.
And finally, it is an assistance, that is to say the services provided by the franchisor for the benefit of the franchisees so that they exploit in the most efficient way possible the know-how in the respect of the image of the brand; and this, in return for the royalty paid by the franchisee for all the counterparties that I have just described to you.
Is there a standard franchise agreement that complies with the law?
In fact, not because an unnamed contract is a contract that is not defined by law, so there is no legal regime of the franchise contract. It is a contract that has been created by practitioners, lawyers and their clients, traders and whose contours have been defined as and when by the judges on the occasion of litigation of franchise law.
There is therefore no standard franchise agreement. A franchise agreement is always a technique for the personalised organisation of a desired relationship between a franchisor and a franchisee. So what does that mean? This means that at the firm, we will implement a client questioning technique, and from the knowledge we have of their sector of activity, ask them specific questions according to this sector of activity.
And at every possible point in a relationship between a franchisor and a franchisee, we will put the options on the table.
So the franchise agreement is entirely personalised and is co-constructed between the lawyer and his client.
What is a good franchise agreement?
This is a difficult question. First, to try to provide some answers that a good contract, in general, is a clear contract; it is a contract that is a guide to the relationship, that is to say that in a given situation, each party must know the extent of its rights. It guarantees that if she knows them, she will surpass them less.
Then, it is a contract that is unequivocal, that is to say that we must, on reading the clause, deduce only one meaning, so that the solution of a possible dispute to this clause is known in the most precise way possible; therefore that there is no hazard of interpretation, that the clause does not lend itself to an interpretation that could be unfavourable.
Afterwards, it is a contract that must be complete, that is to say, it is necessary to consider the entire field of the relationship between the franchisor and the franchisee and not to leave aside fields of relationship that in fact would not be governed by any rule, because otherwise, we will find ourselves helpless when we are in this situation.
It is therefore necessary to know the franchisor-franchisee relationship well and to embrace it from A to Z.
Then, it is a contract that must be scalable, because the franchise contract is long-term; the observed durations are 5 to 10 years because they must allow the amortization of the concept, its financing…
Over such a long period, obviously, the consumer evolves, the competition evolves and therefore the contract must be able to include evolution clauses. For example, your know-how must be able to be updated; you may want to change the range of products and evolve them; the architectural and visual concept must be able to be updated.
So a good franchise agreement is one that includes all the evolution clauses necessary for the network to remain agile in the market. And then a good contract for the franchisor’s shareholder, it is a contract that will allow it to enhance its network: absolutely compliant contract, without any complaint of compliance, at the time of an acquisition audit or when it will bring in a fund to finance its development. It is a contract that allows good control of the image of the brand, good control of the application of know-how, good control of the perimeter of the network, pre-emption rights, possible promises of sale, non-competition clauses; in short, a contract that will ensure a level of control that will be satisfactory for the operator; And this is a condition of the valuation of the network and this simply translates into sounding and stumbling currency at the time of the operations of the top of the balance sheet or the transfer of the franchisor’s business.
When it comes to drafting a franchise agreement, what are a lawyer's key skills for drafting such an agreement?
First of all, experience; what is very important is to have worked with very many franchisors, very many networks, to know perfectly their sector of activity since it is not a named contract and therefore the experience is not found in the law books, but in the firms, this is where the content of franchise contracts is forged.
Knowledge of the business sector is very important; therefore have specialized lawyers with excellent economic knowledge of the business sectors to understand the purpose of the organization that the contract will have to deal with.
And
then knowledge of competition law, it is a law that is very specific, that not all practitioners are familiar with, but franchise law, if there is a great deal of contractual freedom, is very framed by competition law.
All clauses of territorial exclusivity, customer exclusivity, non-competition, supply exclusivity, duration, renewal etc. are likely to give rise to strong criticism under antitrust law or under the restrictive practices of Title IV – Book IV of the French Commercial Code.
So this knowledge is very important because the penalties attached are extremely heavy and the contract must not lend critically.
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