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Franchise agreements and the possibility of uncertain terms

On Behalf of | May 28, 2021 | Commercial Disputes |

Franchise agreements typically contain provisions business owners must follow to maintain consistency with the corporation’s brand. Terms may outline how a company requires franchisees to uphold its operating strategy and sell products or services. 

Contracts include how much money a franchisee must invest upfront to purchase a unit. According to Franchising.com, an agreement should clearly describe the costs for operating a franchise and the ongoing fees. The fees may include the right to use a company’s trademarked logos and signs. 

Royalties and marketing fees

Before signing an agreement, a potential franchise business owner may wish to learn more about how the company assesses its fees and royalties. For example, a company may require a percentage of a unit’s monthly revenue as royalty payments. 

A franchisee may need to also pay ongoing fees for advertising and marketing. Some companies pool together fees from their franchisees and purchase expensive television commercials or print ads appearing in nationwide newspapers. If the ads do not attract local customers, however, franchisees may still have a legal obligation to continue remitting the fees to the franchisor. 

Fees causing harm or damage

A corporation may update its technology and operating software and then collect additional fees from its franchisees. As a system or technology improves, its costs may automatically increase and pass on to franchisees without their consent. 

Several franchisees of a popular fast-food restaurant have considered filing a legal action against the franchisor corporation over technology fees totaling $70 million. As reported by NBC New York, a survey revealed that 75% of franchisees favored taking the company to court to stop its collection of the fees. 

Franchise business owners have rights under contract law to repair unconscionable provisions written into an agreement. A legal action may result in modifying terms, rescinding a contract or providing compensation for damages.