WHAT IS A FRANCHISE AGREEMENT?

A franchise agreement is a legal contract that sets out the terms and conditions of the relationship between the franchisor and the franchisee, including the rights and obligations of each party. It is important to note that a franchise agreement cannot contract out of any of the rights or obligations afforded to the franchisee or franchisor under the Arthur Wishart Act, such as the mandatory disclosure obligation of the franchisor, the duty to act in good faith and fair dealing, and the rights of franchisees to associate. The main terms of a franchise agreement generally include the rights and obligations of the franchisee and franchisor, the geographical area the franchisee can operate if applicable, franchise fees to be paid to the franchisor including royalties, advertising fees, assignment fees if applicable, term length of the agreement, term renewal options, intellectual property agreements, non-competition agreements, marketing rights and obligations, the requirement to adhere to any design or renovations the franchisor requires, insurance requirements, and terms and conditions outlining circumstances in which the franchise agreement may be terminated. Other common terms include post-termination or post-term requirements, such as the franchisee’s obligation to return any confidential material, cease using any intellectual property of the franchisor, and pay any outstanding fees to the franchisor. If the franchisee breaches any of the terms or conditions of the franchise agreement, the franchisor may be entitled to certain remedies.

If the franchisee breaches a material term in the franchise agreement, the franchisor may be entitled to terminate the franchise agreement. Termination of the franchise agreement by the franchisee may also result in the franchisee losing their investment in the franchise, as the franchise agreement may specify that the franchisor is entitled to keep any payments contributed by the franchisee. If the franchisor suffers financial harm due to the franchisee’s breach of the franchise agreement, the franchisor may be entitled to recover damages, as set out in the franchise agreement. Other remedies include the franchisor obtaining a court-ordered injunction against the franchisee if they continue to breach the terms of the franchise agreement, like continuing to use the franchisor’s intellectual property after the franchise agreement’s termination. It is highly recommended to have an experienced business lawyer review the terms of the franchise agreement prior to its execution.

If you are looking to enter into a franchise agreement, contact us today to set up an initial consultation.

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Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.

About the Author:

Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.