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Obligations of a franchisee within the franchise agreement

crop2By Peter Snell
This column will continue to explore different aspects of the franchise agreement to give you a better understanding of its basic elements. We look at some of the general obligations for the franchisee that are found within the agreement. (In turn, a future column is being planned that will discuss the franchisor’s obligations to the franchisee.)

Please note it is extremely important for you to take the time to fully analyze and review a franchise agreement before you sign it. While the following information serves as a general overview, as always, you should also seek your own legal advice when reviewing any franchise agreement. Only then can you obtain specific information and advice relevant to your particular circumstances.

Where to start?
Franchise agreements are long and complex documents. Often, the initial reaction of any potential franchisee is to feel overwhelmed, with no idea where to start.

Few franchise agreements are written in plain English. For anyone who is not used to reviewing complex legal documents, it is an enormous challenge to go through and understand the nuances of a franchise agreement.

In fact, even many lawyers are not familiar with the provisions commonly found in franchise agreements. Franchise law is a unique specialty unto itself.

A franchise agreement will contain a lot of obligations for the franchisee. Some are broad requirements, while others are more specific.

One example of a broad requirement is the responsibility to ensure crop4compliance with all applicable laws. The franchisee must realize he/she cannot rely on the franchisor to determine what laws will apply to his/her business, e.g. whether or not the proposed location for a franchised restaurant is in compliance with all local zoning bylaws, liquor licensing regulations and any other requirements related to operating a business. So, the franchisee should independently review these legal aspects carefully before signing the franchise agreement. You need to be sure you can operate the business in the manner and location you have envisioned.

Another common requirement is for the franchisee to acknowledge the success of the business is dependent on his/her own personal efforts. Neither the franchisor nor any other party will guarantee the franchised business will be successful.

The franchisor will not be held liable in any way to the franchisee for any losses sustained in the operation of the franchised business. The franchisee is, in essence, an independent contractor, entitled to all profits derived from his/her business operations after the payment of all sums due to the franchisor. So, the franchisee is obligated to look after his/her business.

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