Introduction
A Franchise Agreement is a part of IPR (Intellectual Property Rights) agreements and deals with two parties’ franchisor and a franchisee.
A franchising agreement allows a person (franchisee) to operate and use the business model, brand and concept of the other party (franchisor).
The use of such business model, concept, idea or brand is done only with the permission of the owner of such idea.
Franchise Agreements in India
Franchise Agreements in India grant the below mentioned rights to a franchisee:–
• Right to trade (manufacture, sale and distribute) the goods/services identified with the franchisor’s trademark.
Franchise Agreements in India grant the below mentioned rights to a franchisor:–
• The franchisor is entitled to get certain payments in exchange for the use of his business ideas which can be monthly, periodical or yearly as per the condition laid down in the agreement.
Franchise Agreement Renewal Benefits
1. Stability and continuity:—You and your franchisees can maintain stability by renewing your franchise agreements. This guarantees that both franchisees can continue running their current companies and that you may continue to profit from the franchise location's continuity.
2. Cost-efficiency:- Compared to looking for new franchisees or opening new sites elsewhere, renewal may be more economical. The expenses of hiring new franchisees and providing them with training will be reduced.
3. Streamlined processes:- Without making major adjustments to their current operations, franchisees are free to carry on with their business as usual. Potential disturbances are reduced when the changeover is seamless.
4. Opportunities for mutual progress:- You may strengthen your relationship with your franchisees by renewing. You can use your knowledge and perceptions to help the franchise site and your business succeed.
Expiration of Franchise Agreement
Expiration of the Franchise Agreement means the end of the term period of an agreement without any breach or conflict between the parties. If the parties do not wish to renew the agreement then they can proceed ahead with the termination of the agreement.
The expiration of the agreement does not mean that the parties do not have any obligation towards each other. Some obligations exist even after the expiration of the agreement between the parties.
The franchisor has the right to allocate the unit as per their whim and the ex - franchisee owner has the responsibility to maintain secrecy of trademarks and other confidential information and trade practices of the franchisor.
What Happens When A Franchisor Terminates Franchise Agreement?
In the constantly evolving world of business, circumstances can occur when a franchisor intends to terminate a franchise agreement. When such an event occurs, it becomes crucial to understand the legal obligations in place.
Some instances where franchisors can initiate the termination of a franchise agreement are:
1. Material Breach: Material breach of the franchise agreement in terms of non-payment of fees, violation of agreed rules or any substantial failure can result in termination of the franchise agreement.
2. Insolvency and Bankruptcy: In case of insolvency and self – administration or liquidation, sometimes it is in the best of both parties to terminate the agreement.
3. Abandonment: Franchisees may leave their companies abruptly. Under the code, franchisors may have the right to revoke their licenses in certain situations.
4. Non-Renewal: This is a type of termination when a franchise disclosure contract reaches its expiration date and, with the franchisor's consent, it is chosen not to renew.
5. Force Majeure: A franchisee may not be able to continue operations due to unforeseen events like natural catastrophes or governmental laws. In these situations, the franchisor might have to end the contract.
The below mentioned practices are followed after the termination of a franchise agreement:–
1. Cooling-off time: The franchisee may have a "cooling-off" time following notice, during which they can address any problems that resulted in the notice of termination.
2. Mediation: According to the terms and conditions laid down in the agreement, both parties can also opt for mediation or conflict resolution procedures if disagreements emerge during the termination process.
3. Adherence to Lease Agreements: After the termination of franchise agreements, lease-related issues should be handled independently.
4. Final Settlement: After the termination the details of the settlement should be agreed upon between the franchisor and franchisee.
When a Franchisee Can Renew or Extend?
A franchisee agreement can be renewed or extended when both parties think that their interests are being met and when the agreement is expiring because of the completion of the date and not because of the intention of one party terminating the agreement with another.
Renewal Process of the Franchise Agreement
Generally, franchise agreements are made for 5 – 10 years. But before the expiry of the agreement both the parties can opt for the renewal process if they are willing to continue their business relationship.
Here are some factors that should be kept in mind when opting for renewal of the franchise agreement:-
1. Reviewing Existing Agreement: This ensures a crystal clear understanding of the terms and conditions laid down in the agreement.
2. Amendments: The renewal process serves as an opportunity for both the franchisor and franchisee to amend and negotiate the existing terms.
3. Effective Communication: Effective communication is the key to creating long-standing partnerships. Even before the expiration of the agreement, the parties should make an effort to create channels of communication.
4. Legal Support: The legal support of an efficient team also plays a key role in smooth renewal. The law experts who specialize in franchise agreements should be ideally consulted to reduce hassles.
Conclusion
Franchise Agreements play a crucial part in today’s business landscape. One should indulge and approach the renewal process with utmost caution.
Renewal of such agreements results in long budding business relationships, stability and mutual growth.
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