franchise-agreement

name	franchise-agreement
language	en
description	Drafts FTC-compliant U.S. Franchise Agreements covering rights grants, territory, fees, operational standards, IP protection, transfer restrictions, default/termination, and post-term obligations. Flags state relationship and registration law issues. Use when drafting initial or renewal franchise agreements, negotiating franchise terms, or expanding a franchise system.

Franchise Agreement

Drafts a litigation-hardened, FTC-compliant U.S. Franchise Agreement that protects franchisor IP and system standards while defining franchisee rights and obligations.

Prerequisites

Collect before drafting:

• Parties — legal names, state of organization, principal place of business (both sides)
• Brand/IP — trademarks, service marks, trade names, logos, proprietary system description
• Territory — exclusive/non-exclusive/protected; defined by address, radius, zip codes, or other demarcation
• Fees — initial fee, royalty rate/basis, ad fund %, technology fees, transfer fee, renewal fee
• Training — duration, location, attendee requirements, cost allocation
• Site/format — fixed location or mobile; site selection responsibility; lease approval requirements
• Carve-outs — any deviations from franchisor's standard form

Quick Start

1. Confirm FDD exists and is current — agreement must not contradict FDD disclosures
2. Draft agreement sections per the structure below using collected prerequisites
3. Build fee schedule with precise Gross Sales definition
4. Draft default/termination matrix with cure periods
5. Add post-term non-compete tailored to jurisdiction
6. Attach exhibits (territory map, personal guaranty, operations manual acknowledgment)
7. Run regulatory checks (FTC Rule, state relationship laws, registration states)

Agreement Structure

Section	Key Points
Parties & Recitals	Franchisor IP ownership; franchisee license desire
Grant of Rights	Marks licensed; format; territory type and boundaries
Term & Renewal	Initial term; renewal conditions (good standing, upgrade, current-form FA, fee); lapse consequences
Financial Obligations	Per fee schedule below
Franchisor Obligations	Training; ongoing support; Operations Manual; site/pre-opening assistance
Franchisee Obligations	System conformity; hours/staffing/service standards; owner involvement; insurance; reporting
Site Development	Approval process; deadlines (site selection, lease, construction, opening); failure-to-open remedy
IP Protection	Limited license only; goodwill flows to franchisor; mark non-contestation; confidentiality survives termination
Transfer & Assignment	Prior written consent; transfer fee; transferee training; ROFR; death/disability provisions
Default & Termination	Per default matrix below
Post-Termination	De-identification; return of materials; amounts due; non-compete
Relationship of Parties	Independent contractor; franchisee liable for employment, taxes, liabilities
Dispute Resolution	Governing law (franchisor home state, subject to franchise law limits); venue; mediation/arbitration; fee-shifting
General Provisions	Entire agreement; written amendments; waiver; severability; force majeure; notice addresses

Fee Schedule

Fee	Requirements
Initial franchise fee	Fixed amount; due on signing
Royalty	% of Gross Sales; weekly/monthly; ACH/wire mechanics
Ad fund contribution	% of Gross Sales; administration description
Technology fee	Fixed or variable; escalation terms
Transfer fee	Fixed amount or % of sale price
Renewal fee	Fixed amount; due at renewal exercise

Define Gross Sales with specificity — enumerate exclusions (sales tax, refunds, employee meals, etc.) to prevent disputes.

Default & Termination Matrix

Event	Notice	Cure Period
Abandonment / conviction / unauthorized transfer / lease loss	None	Immediate
Failure to pay fees or submit reports	Written	10–15 days
System standards non-compliance	Written	30 days

Post-Term Non-Compete

Draft as 1–2 years from termination/expiration, within specified radius of former location and all system locations. Include blue-pencil clause. [VERIFY applicable state non-compete statutes]

Exhibits

• Territory map and approved location description
• Personal guaranty form (standard for entity franchisees)
• Operations manual acknowledgment
• Table of contents if agreement exceeds 10 pages

Regulatory Checks

• FTC Franchise Rule (16 C.F.R. Part 436): Agreement must align with FDD; prohibit misrepresentations; allow required rescission periods [VERIFY current Rule provisions]
• Relationship law states (CA, IL, IN, IA, MI, MN, NE, NJ, WA, WI): Require modified termination, renewal, and transfer provisions — flag if any are operating states
• Registration states (CA, HI, IL, IN, MD, MI, MN, NY, ND, RI, SD, VA, WA, WI): May restrict franchisor home-state governing law — flag if applicable

Common Pitfalls

• Vague territory language — do not guarantee exclusivity unless territory is defined and exclusive in fact; this is a top litigation trigger
• Goodwill misattribution — all goodwill must flow to franchisor; never imply franchisee acquires mark rights
• Overbroad non-competes — must be reasonable in scope, duration, and geography to be enforceable
• FDD/FA inconsistency — agreement terms that contradict FDD disclosures create regulatory and litigation exposure