By Lee Shy Tsong

Senior Partner

Donaldson and Burkinshaw

There are many reasons that motivate a franchisor and franchisee to formalize their agreement with a Franchise contract. Benefits of a Franchise agreement are listed below.

• Allows greater flexibility since parties are free to negotiate terms of the FA and determine scope of agreement

• May attach ancillary documents, refer to the applicable legislation, provide for alternative dispute resolution through arbitration and mediation clause
• Allows parties to frame relationship between franchisor, sub-franchisors and franchisees
• Parties are at liberty to craft the contractual relationship as desired. E.g. Franchisor may choose to deal only with sub-franchisor and transfer certain risks associated with managing the franchisee to the sub-franchisor
• Allows parties to make provisions for all contemplated circumstances
• Provide for termination, or restrict/ impose conditions on transfer of interests or rights under the FA

• No restriction on financial returns to be agreed from the franchising scheme
• Allows parties to negotiate for the proportioned amount
• Supplemental terms may be added through addenda, supplemental agreements and side letters
• Protection of the know-how
• Can include non-competition clauses or covenants not to compete. May not be entirely effective because of the general public interest for competition. Therefore these clauses will be limited in their scope and duration.