Unit Franchise Agreement

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Introduction

Retailers are always looking for new concepts to attract consumers. Some concepts work, others do not. When the concept works, the creator of the concept may want to expand it on a large scale. The main hurdle to be overcome is generally the need for financial, material and human resources required for such expansion. The franchise formula is an effective way to circumvent this lack of resources, by granting a right to use the concept to others who will take over the obligation to provide the resources required for the operation of the retail outlet according to the concept. The assignment of the right to use an integrated concept is generally called "franchise" and involves the payment of royalties to the creator of the concept, who thus obtains revenue from such assignment while creating a network of retail outlets.

This document establishes the legal, financial and commercial framework of such an operation.

Description

The Franchise Agreement is the legal instrument by which a person, called the FRANCHISOR grants the exclusive right to use his operating concept of a retail outlet operating under its banner, within a given territory to another person, called the FRANCHISEE, which is committed to operate this sale outlet in compliance with the franchisor’s rules. This type of agreement is characterized by the payment of a royalty on the proceeds of the FRANCHISEE’s sales to the FRANCHISOR.

Use

We recommend the use of this document when a business develops a concept or a unique process, which it hopes will rapidly multiply to expand its share on the market in a geographic area. The success of this marketing method requires the would-be franchisor the development of sufficient material and human resources to enable it to spread its know-how to potential franchisees, in addition to managing the network of outlets which will result from the effort of recruiting franchisees. Unlike the Dealership Agreement (document K04.200of the Business Precedents) and Lease Management Agreement (document K06.500 of the Business Precedents) the franchise agreement focuses on an integrated concept, not on the sale of a product. The classic case of franchise agreements is the fast-food industry where many restaurants are subject to an unit franchise agreement.

This agreement differs from the master franchise agreement because it focuses on a single sale outlet sale, whereas the latter covers a geographic area capable of receiving multiple unit franchises and includes the obligation to establish such unit franchises.

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