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hello my name is Jason and I'm an adjunct lecturer at the Griffith Business School the underlying basis of any franchise relationship is contained in the franchise agreement this is the legally binding contract that joins the franchisee and franchisor together in a business relationship franchise agreements by their very nature are long winded documents that could be sometimes difficult to read potential franchisees should always get advice from a lawyer with franchising experience but should also attempt to read the franchise agreement for themselves in order to better understand this advice this means taking a measured approach to reading the agreement over time rather than trying to get through it all in one attempt make notes as you go so you can ask questions of the franchisor and if you're legal and business advisors bear in mind however that one of the great attractions of franchising is the standardization of the business system which also includes the standardization of the franchise agreement there is often little if any room for negotiation about the terms and conditions within the franchise agreement itself but there can occasionally be some room for discussion in that part of the agreement known as the schedule which usually contains the particulars of the franchise to be granted almost all franchise systems will have a franchise agreement customized specifically for their business and which applies to currently new franchisees it is likely therefore that no two franchise systems will have exactly the same agreement but rather have agreements which contain similar requirements for the rest of this unit we will look at requirements also known as provisions which appear commonly in franchise agreements if you've never seen a franchise agreement before you might be surprised at how long and detailed these documents can be often in the range of 20 to 60 pages and sometimes more the agreement may have a cover page then a table of contents and a short passage summarizing that the agreement between the two parties is for the ground of a franchise subject to the terms and conditions which follow in some agreements the next thing which may appear is a list of definitions used in the agreement although this can sometimes appear at the end of the document to the definitions provide specific meanings for words or phrases used in the agreement and can run for up to several pages an example might be say a definition of the term operations manual which could mean all the operations and procedures manuals used in the business which outlined the how-to information required to operate the franchise as well as any changes made to these manuals over time and any current or future electronic or online format of the manuals thereafter the agreement will outline the terms and conditions of the franchise grant it's important to note at this stage the franchise is a conditional grant usually limited by time this means that a franchise does not transfer ownership of the franchise brand system and know-how to the franchisee but rather gives the franchisee access to these things and other components of the franchise offer for the term of the franchise as a conditional grant the franchise can be withdrawn or terminated if the franchisee fails to meet the ongoing conditions of the franchise some common types of which we will discuss shortly in addition to that the franchisee is generally granted the franchise for a limited period of time known as the term of the franchise according to surveys of the franchise sector in Australia conducted by Griffith University the average franchise term is five years usually with an option to renew for a further five years this means that franchisees pay for the rights to access the franchise system provided that they follow the system and have these rights for a limited period of time which might be extended by renewal of the franchise term with this in mind it is essential to look at the terms and conditions associated with the ground of the franchise so that a potential franchisee knows what is involved in their business relationship with the franchisor let's now look at some common provisions and what these might entail the scope of the franchise will generally outline the extent of the franchise in regards of goods or services to be provided or whether or not there is an exclusive territory if there is an exclusive territory this provision will then be likely to refer to a map or some other indicator of the territory usually attached as an item in the schedule which appears at the end of the franchise agreement this provision may also discuss the circumstances under which the franchisee may operate beyond their site or territory or circumstances where the franchisor or other franchisees may operate on occasion near or adjacent to the franchisees site or territory for site dependant franchises such as retail businesses conditions about the premises and its fit-out appearance fitness for purpose etc may be included in this provision similar conditions would apply for vehicles required for mobile service franchises conditions of this provision might include a requirement for the franchise rules approval prior to commencement of operations or to a change in layout design or function and conditions surrounding renewal refurbishment or upgrading of equipment or Fidelis the nominated manager provision generally establishes that a real person holds management responsibility for the normal operation of the business which is necessary where the entity which has been granted the franchise is a company trust or partnership the nominated manager is considered to be the representative of the franchisee and is required to attend meetings with and be trained by the franchisor and to generally supervise and manage the operation of the franchise a nominated manager must meet the standards set out by the franchisor for this role and the franchises permission may be required for a franchisee to change a nominated manager the amount of franchise royalty if any to be paid its method of calculation and the frequency and manner of its payment will be stated in the franchise agreement we'll learn more about royalties in a later unit in this education program this provision may be known by different names but in essence it requires franchisees to follow the system and the image established by the franchisor and to operate the business in accordance with the policies and procedures laid down in the operations manual which may of course change from time to time this would for example require a franchisee to seek approval from the franchisor for a franchisee to produce their own advertising artwork brochures and signage among others the franchise agreement exists in tandem with the operations manual for the system as we heard earlier the operations manual contains the how-to knowledge for the operation of the business so this will contain the technical details of business procedures in the franchise consequently the franchise agreement doesn't include business procedure details but instead refers through the operations manual where these can be found as the business evolves so too will the operations manual a failure to follow the systems and procedures outlined in the operations manual will in effect be a contravention or breach of the franchise agreement and may put a franchisees business at risk because the operations manual contains such detailed business know-how and is linked to the franchise agreement a franchisee should satisfy themselves when doing their due diligence that the operations manual exists and that it is possible to operate the business in accordance with the manual