casemark/franchise-agreement

Franchise Agreement

Drafts a litigation-hardened, FTC-compliant U.S. Franchise Agreement that protects franchisor IP and system standards while defining franchisee rights and obligations.

Prerequisites

Collect before drafting:

• Parties — legal names, state of organization, principal place of business (both sides)
• Brand/IP — trademarks, service marks, trade names, logos, proprietary system description
• Territory — exclusive/non-exclusive/protected; defined by address, radius, zip codes, or other demarcation
• Fees — initial fee, royalty rate/basis, ad fund %, technology fees, transfer fee, renewal fee
• Training — duration, location, attendee requirements, cost allocation
• Site/format — fixed location or mobile; site selection responsibility; lease approval requirements
• Carve-outs — any deviations from franchisor's standard form

Quick Start

1. Confirm FDD exists and is current — agreement must not contradict FDD disclosures
2. Draft agreement sections per the structure below using collected prerequisites
3. Build fee schedule with precise Gross Sales definition
4. Draft default/termination matrix with cure periods
5. Add post-term non-compete tailored to jurisdiction
6. Attach exhibits (territory map, personal guaranty, operations manual acknowledgment)
7. Run regulatory checks (FTC Rule, state relationship laws, registration states)

Agreement Structure

| Section | Key Points | |---|---| | Parties & Recitals | Franchisor IP ownership; franchisee license desire | | Grant of Rights | Marks licensed; format; territory type and boundaries | | Term & Renewal | Initial term; renewal conditions (good standing, upgrade, current-form FA, fee); lapse consequences | | Financial Obligations | Per fee schedule below | | Franchisor Obligations | Training; ongoing support; Operations Manual; site/pre-opening assistance | | Franchisee Obligations | System conformity; hours/staffing/service standards; owner involvement; insurance; reporting | | Site Development | Approval process; deadlines (site selection, lease, construction, opening); failure-to-open remedy | | IP Protection | Limited license only; goodwill flows to franchisor; mark non-contestation; confidentiality survives termination | | Transfer & Assignment | Prior written consent; transfer fee; transferee training; ROFR; death/disability provisions | | Default & Termination | Per default matrix below | | Post-Termination | De-identification; return of materials; amounts due; non-compete | | Relationship of Parties | Independent contractor; franchisee liable for employment, taxes, liabilities | | Dispute Resolution | Governing law (franchisor home state, subject to franchise law limits); venue; mediation/arbitration; fee-shifting | | General Provisions | Entire agreement; written amendments; waiver; severability; force majeure; notice addresses |

Fee Schedule

| Fee | Requirements | |---|---| | Initial franchise fee | Fixed amount; due on signing | | Royalty | % of Gross Sales; weekly/monthly; ACH/wire mechanics | | Ad fund contribution | % of Gross Sales; administration description | | Technology fee | Fixed or variable; escalation terms | | Transfer fee | Fixed amount or % of sale price | | Renewal fee | Fixed amount; due at renewal exercise |

Define Gross Sales with specificity — enumerate exclusions (sales tax, refunds, employee meals, etc.) to prevent disputes.

Default & Termination Matrix

| Event | Notice | Cure Period | |---|---|---| | Abandonment / conviction / unauthorized transfer / lease loss | None | Immediate | | Failure to pay fees or submit reports | Written | 10–15 days | | System standards non-compliance | Written | 30 days |

Post-Term Non-Compete

Draft as 1–2 years from termination/expiration, within specified radius of former location and all system locations. Include blue-pencil clause. [VERIFY applicable state non-compete statutes]

Exhibits

• Territory map and approved location description
• Personal guaranty form (standard for entity franchisees)
• Operations manual acknowledgment
• Table of contents if agreement exceeds 10 pages

Regulatory Checks

• FTC Franchise Rule (16 C.F.R. Part 436): Agreement must align with FDD; prohibit misrepresentations; allow required rescission periods [VERIFY current Rule provisions]
• Relationship law states (CA, IL, IN, IA, MI, MN, NE, NJ, WA, WI): Require modified termination, renewal, and transfer provisions — flag if any are operating states
• Registration states (CA, HI, IL, IN, MD, MI, MN, NY, ND, RI, SD, VA, WA, WI): May restrict franchisor home-state governing law — flag if applicable

Common Pitfalls

• Vague territory language — do not guarantee exclusivity unless territory is defined and exclusive in fact; this is a top litigation trigger
• Goodwill misattribution — all goodwill must flow to franchisor; never imply franchisee acquires mark rights
• Overbroad non-competes — must be reasonable in scope, duration, and geography to be enforceable
• FDD/FA inconsistency — agreement terms that contradict FDD disclosures create regulatory and litigation exposure