The franchise agreement is drawn up with the intention of providing a product and service in return for the price determined between the parties by adhering to the franchisor’s terms of business. There are two parties in the franchise agreement, the franchisee and the franchisor. The franchisor grants the franchisee the right to use its brand, product and the operation of its business. The subject of the contract may be the production, sale and marketing of a product or the provision of services. The franchisee must follow the concept developed by the franchisor. The franchisee pays the price agreed in the agreement to the franchisee while acting on its own behalf during the term of the agreement. In this agreement, the rights and obligations of the parties are determined in general terms. The franchisee will take an active role in commercial life in accordance with the instructions of the franchisor. Generally, when the agreement is drawn up, a certain rate is paid and then a certain percentage of the turnover is paid.
What is a Non Exclusive Franchise Agreement?
In the franchising agreement, it may be agreed whether the franchisee will have a monopoly right in a certain place or region allocated to it. If it is stipulated that the franchisor cannot drawn up a franchise agreement with third parties and connot make direct sales in a certain place or region allocated to the franchisee, and if it is stipulated that franchisees in another place or region cannot sell out of their own reigon and measures have been taken fort his, this is known as a exclusive franchising agreement. However, according to the Law on the Protection of Competition, agreements between undertakings, concerted practices and such decisions and actions of associations of undertakings that directly or indirectly prevent or restrict competition in a particular goods or services market, or that have or may have the effect of preventing or restricting competition, are considered unlawful and prohibited. In particular, the division of markets for goods or services and the sharing or control of any market resources or elements are prohibited (Art. 4) When drawing up an exclusive franchising agreement, it is necessary to take into account the Competition Board’s Block Exemption Communiqué No. 2002/2 on Vertical Agreements, which covers agreements between two or more undertakings operating at different levels of the production or distribution chain and which are related to the purchase, sale or resale of certain goods or services.
If the franchisor can drawn up a franchise agreement with third parties in a certain place or region allocated for the franchisee or sell the goods and services that are the subject of the franchise agreement directly to this region, it is called a non-exclusive franchising agreement.
What Information is Included in a Franchise Agreement?
Some elements must be specified in the agreement for the agreement to be valid. These elements are listed below:
- Price
The agreement is a type of a perfect reciprocal contract which means that encumber obligations on two parties. With the fee element, the franchisee is obliged to give the franchisor a certain amount initially and then a certain share of the turnover. The price is the main element. All rights granted by the franchisor are made available to the franchisee upon payment of a fee. The price is called in two ways as the price paid at the beginning and the priceb paid from periodic earnings.
- Independence of the franchisee
The franchisee acts independently on its own behalf. The element of independence can be defined as the franchisee taking all the risks arising as a result of the operation of the commercial enterprise on itself. It should not be mistaken for following the instructions of the franchisor during the provision of goods and services. The franchisor is legally and economically completely independent. The franchisee will be responsible for all positive and negative consequences arising from the business.
- Franchise system
Through the franchise system, the franchisor must plan and bring together the business and marketing processes. By determining its business model and organization, it must share with the franchisee from its management style to marketing strategies. It aims to increase its sales by sharing its “system” with the franchisee.
- It is a contract containing a continuous debt relationship
Franchise agreement is a type of contract that includes a continuous debt relationship. The performance obligation between the parties does not end with the drawn up the agreement. It is repeated with many acts during the term of the agreement.
What Two Items are Delineated in a Franchise Agreement?
According to the definition made by Fikret Eren in the doctrine, “Franchise agreement is a unique innominate agreement in which the franchisor undertakes to transfer to the franchisee the right to benefit from a certain business concept regarding the sale and provision of goods and services and increasing market versions by using its existing marketing and organization systems, commercial and technical experience and knowledge under its own brand, image, name, trademark and sign, in return for a fee that it undertakes to pay.” (Fikret Eren, “İsimsiz Bazı Sözleşme Türleri”, Başkent Üniversitesi Hukuk Fakültesi Dergisi, Ocak 2015, C. 1, S. 1, s. 67-129).
Based on this definition, we can state the basic obligations of the parties as follows: The franchisor is obliged to make intangible goods and rights available and support the franchisee, while the franchisee is obliged to pay a fee and increase the version. These elements must be included in the agreement
Term of Franchise Agreement
The agreement may be for a fixed or indefinite term. The parties may specify a certain period of time when concluding the agreement. If such a period is determined, the agreement will automatically terminate upon the expiration of this period without any notice. If no time period is determined at the beginning, the agreement may be terminated by giving a period of time to the other party to the agreement and a notice of termination.
Are Franchise Agreements Negotiable?
It is possible for the franchisee to make various choices when paying for the brand or system they have the right to use. If it is decided to receive a lump sum payment with the conclusion of the contract, this is called a lump sum fees. Payments to be made continuously and for certain periods are calculated and paid based on turnover. This is called a royalty. The parties can choose in the contract how they want to proceed with the price.
Likewise, the duration of the agreement is a matter that may be agreed upon by the parties. It is possible for the agreement to be concluded for a certain period of time and for the agreement to lose its validity upon expiration of this period. The parties may decide on this period by mutual agreement.
How to Get Out of a Franchise Agreement?
As mentioned above, the agreement may be concluded for a fixed or indefinite period of time. Fixed-term contracts will automatically terminate upon the expiration of the term. However, the situation is slightly different in indefinite agreements. If there are just causes to terminate the contract, both parties may terminate the contract. The grounds for termination for just cause will be specified in the contract. In addition to these, some fundamental breaches of contract will also be considered as just cause.
- Ordinary termination
With this type of termination, the contract can be terminated for the future with the unilateral declaration of one of the parties to the agreement. Ordinary termination can be applied in indefinite-term agreements. In order for it to be applied in fixed-term contracts, it must be expressly agreed in the agreement.
- Extraordinary termination
It is applied in cases where unforeseen circumstances occur or one of the parties fails to fulfill its obligations under the agreement. In such cases, the parties cannot be expected to continue the agreement. In this type of termination, the parties do not give each other any termination period.
- Other reasons
The agreement will be terminated when one of the parties to the agreement dies, is declared bankrupt or permanently loses his/her capacity.
It will be possible to get out of the franchise agreement due to the above-mentioned elements.
Assignment of Franchise Agreement
The assignment of the franchise agreement means the assignment of the business established by the agreement to another person. After this assignment, the transferee will become a party to the franchise agreement by becoming a franchisee. This situation is not clearly regulated in Turkish legislation. For this reason, this issue should be discussed with the franchisor before the contract is drawn up. A relationship of trust arises with the franchise agreement. The franchisee has to consider the reputation of the franchisor’s brand. For this reason, the transfer of the contract to another person without the knowledge of the franchisor may create problems. The parties may include a non-assignment clause stating that the contract cannot be assigned without the permission of the franchisor.
What to do in Case of Breach of Franchise Agreement?
The franchisor needs to conduct market research, develop strategies and advertise in order to market its goods or services in the best way. The franchisee should keep the franchisor informed about the progress by ensuring the continuity of the product or service that is the subject of the contract. The franchisee must follow the instructions of the franchisor. With the agreement, the parties can determine their obligations and limits. If the parties do not comply with the matters specified in the contract or act against the rules of honesty, the trust relationship in the agreement may be damaged. The parties may fail to fulfill their obligations contrary to what was agreed in the agreement. In this case, the agreement will be terminated. After the termination of the agreement, the rights granted by the franchisor to the franchisee will end and the franchisee will return the materials received.
What are the Advantages of Working with a Franchise Agreement Lawyer?
The franchise agreement is a contract based entirely on trust. The franchisor aims to increase its recognition and sales as well as to protect the reputation of its brand. At this point, it should make a contract with the franchisee with a solid legal basis. It is possible to negotiate in franchise agreements, but for this, it is necessary to be strong both legally and in terms of knowledge. When you work with a qualified lawyer, you will be able to prevent any negativities that may occur and you will be legally safe. They will evaluate the agreements in question in legal language and interpret the options offered to you with a professional perspective.