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

Confirm FDD exists and is current — agreement must not contradict FDD disclosures
Draft agreement sections per the structure below using collected prerequisites
Build fee schedule with precise Gross Sales definition
Draft default/termination matrix with cure periods
Add post-term non-compete tailored to jurisdiction
Attach exhibits (territory map, personal guaranty, operations manual acknowledgment)
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