Understand your franchise agreement

The most important element is the transfer of know-how. There can be no franchise without transfer of know-how. The know-how is the set of non-patented, secret, substantial and identified practical information resulting from the experience of the franchisor and tested by him.

The franchise contract must be very specific on the practical terms of the transmission of know-how. In practice, the know-how is synthesized in a “bible” drawn up by the franchisor. In addition, the franchisee must ensure the practical methods of transmitting this know-how.

Indeed, it is important that the franchisor undertakes to:

• Provide initial training, the practical terms of which are described in the contract; And
• Regularly assist the franchisee throughout the contract. In this regard, the contract must state the number of annual visits by the franchisor.

It depends on the contract. The franchisee will have every interest in carefully checking the counterparties.

The entry fee usually includes (depending on the network heads):

• Training
• Expertise
• Taught
• Territorial exclusivity
• Opening assistance (before, during, after)
• Location finder help
• Assistance in compiling the financing file
  Package (bible…)

There are three main categories of exclusivity:

• Franchise exclusivity
• Exclusivity of implementation
• Exclusivity of supply

The duration of the contract is freely fixed by the parties. On the other hand, exclusive supply obligations are limited in time by the regulations:

• 10 years in French law
• 5 years if European Union law applies (case of most large retailers)

In any case, the franchisee will have an interest in negotiating a firm period sufficient to allow him to recoup his investment.

At maturity, there are several possibilities:

• Termination of the contract in the absence of agreement on a renewal or an extension;
• Extension: the same contract continues, only its duration is extended via an amendment;
• Renewal: in this case, a new contract is concluded. It should be noted that unlike the lessee under a commercial lease, the franchisee has no right to renewal of his franchise contract. On the other hand, the franchisor must not abuse his right not to renew the contract, for example by not encouraging the franchisee to make significant investments if he knows that he will not renew the contract.

When the franchise contract is terminated before its term, the party initiating the termination is likely to see its liability engaged, or even a penalty clause triggered, unless it can demonstrate the fault of the other party.

If the contract contains such a clause, special care should be taken with regard to the sanction for non-compliance with the objectives, which may consist of:

• Termination of the contract without compensation
• Loss of outright exclusivity
• Reduction of the field of exclusivity

No. Competition law expressly prohibits this. At most, he can suggest minimum recommended prices. On the other hand, the franchisor can impose maximum resale prices.

Such a clause is valid if it meets the following four cumulative conditions:

• Purpose: it concerns goods and services in competition with those covered by the franchise agreement
• Geographic scope: it is limited to the land and premises from which the franchisee operates
• Duration: one year maximum after termination of the contract
• Legitimacy: essential for the protection of the franchisor's know-how

If arbitration has the undeniable advantages of confidentiality and speed, it has the disadvantage of its exorbitant cost, the practical effect of which may be to prevent the franchisee from initiating an action on the merits. On the other hand, such a clause does not preclude a summary procedure.