KEY PROVISIONS OF FRANCHISE

AGREEMENTSClaro F. Certeza

SPCMBLAW

To ensure uniformity of operations and preserve brand reputation Each franchisor has its own training program

for franchisees and their staff, which can include training done at the franchisee's location or at the corporate headquarters or a combination.

Most franchisors offer on-going support including administrative and technical support.

TRAINING/ON-GOING SUPPORT BY FRANCHISOR

Par. 4, A Training is given for 2 store manager Training is given in a training facility or an

existing store Manager to be replace if found not qualified Attendance at refresher courses is required Required to allow store to be used as training

facility

Training

To ensure that the outlet’s location is suited to the franchise concept Assigned territory. The Franchise

Agreement designates the territory in which franchisee will operate

Exclusivity. A designated area is reserved for exclusive exploitation of franchisee.

Territory

Par. 1, D Grant is limited to one site Cannot operate the store in any other site

without prior written consent subject to payment of fees for evaluating the new site

Cannot conduct a competing business at the site

Cannot sell to third parties for re-sale Territorial protection is given within the area

designated in the attachment to FA – provided franchisee is in full compliance with the FA

Territory

A franchise is a privilege that is given for a limited period of time only Length of Term. The term should be long

enough to allow the franchisee to recoup his investment and earn a substantial profit.

Franchise Term

Par. 1, D Term is 15 years No renewal clause

Franchise Term

The FA should state clearly the initial cost of investment to avoid misunderstanding Franchise Fee. Franchisees are required to pay an

initial franchise fee that grants them the right to use the franchisor's trademark and operating system.

Investment. There should be an itemized cost for store construction, insurance, initial inventory, and a schedule for drawdown.

Investment

Initial Fee (Par. 3) Franchise fee – US $25,000 When payable – concurrently with the signing

of the FA Nature – non-recurring, non-refundable, fully-

earned when paid Investment

Par. 2, C – merely requires the franchisee to secure all financing to develop and operate the store.

Investment

Ongoing fees and expenses should be clearly stated to avoid misunderstanding Royalties. Most franchisors require franchisees to pay

an ongoing royalty, usually a percentage of total sales, typically on a monthly basis.

Advertising Contribution. Franchisors require their franchisees to contribute to a fund for national advertising.

Security Deposits. Some Franchisors require their franchisees to make a security deposit to cover obligations that may arise in favor of the franchisor.

On-going Fees

Par. 3, B – royalty is fixed at 4.5% gross sales Basis for computation – Gross Sales defined

in Par. 3, C Interest on late payments – interest is fixed

at 1.5%/ month (under Art. 1956 no interest shall be due unless stipulated in writing)

On-going Fees

To preserve brand reputation, the use of the trademark should be regulated. Trademark, patent, and signage use. This

provision covers how a franchisee can use the franchisor's trademark, patent and signage.

Trademark should be used only in connection with the operation of the franchised store.

Trademark can only be used strictly in accordance the Operations Manual.

Trademark

Par. 5 Ownership – derived solely from the FA and

limited to the operation of the store Goodwill – redounds to the benefit of the

Franchisor exclusively Goodwill – reputation of good name of an

establishment (Anderson vs. Posadas, 66 Phil 29) Cannot use the trademark as part of

franchisee’s corporate name

Trademark

Success is enhanced by strict adherence to the business format. Operating protocol. This section details how franchisees

run their outlets. Operating guidelines found in Franchisor’s Operating Manual which is made part of the agreement.

Compliance. Compliance with the Operations Manual is monitored thru right of inspection by franchisor’s representatives.

Operations Manual. The manual is only loaned to the franchisee. The contents are to be kept confidential by the Franchisee and must be returned upon termination.

Operations

Par. 8 Operation and maintenance of store in accordance with

the Standards is necessary to preserve goodwill. Agree to operate in accordance with system standards. Enumerates areas regulated by system standards. Agreement that system standards prescribed from time

to time and communicated to franchisee forms part of the FA.

Commitment that the store shall be under the direct, on premises management by franchisee or manager designated by franchisee.

Provisions Re: Operating Standards

Par. 10, B Right to conduct audit at any time during

business hours without prior notice Covers financial records and access to

computer systems If there is variance in Gross Sales reported by

more than 5%, reimburse cost of inspection and audit

Does not cover operations’ audit

Right to Audit

Renewal should be clearly defined. Grounds for Termination if not provided limits the same to substantial breach Renewal. Absence of renewal provision implies that

renewal is subject to mutual agreement. Conditional renewal allows renewal upon franchisee’s meeting certain conditions.

Termination. Grounds for termination is listed to cover violations that are non-negotiable. Further, the effects of termination is clearly defined.

Renewal/Termination

The franchise is granted upon reliance to the qualifications of the franchisee, a change in franchisee requires consent of the franchisor Resale Rights. Some franchisors write in

buy back or right of first refusal clauses, which allow the franchisor to buy back the franchise at a rate determined by them or to match any potential buyer's offer who has expressed interest in buying your franchise.

Sale of Franchise

Award of franchise is personal to franchisee. If franchisee desires to transfer the

franchise, Franchisor’s consent is required. The term transfer includes: Sale, transfer, or

pledge of the rights in the franchise. Approval to issue if franchisee is not in

default under the FA and transferee meets the standards for new franchisees.

Sale of Franchise

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