Franchisor vs. Franchisee
There’s inherent tension in the franchise relationship- the franchisee and the franchisor both want to make money in the business operation.
The franchisee may have a different idea of how to operate the franchisor’s business than the franchisor does, and the control over those operations, and how profits are affected, are where interests clash.
The franchisor is very aware of this tension and likely has multiple attorneys available to assist in navigating these conflicts, and these attorneys may have possibly taken proactive action in the franchisor’s favor as well.
A smart franchisee will also have a good relationship with a franchise attorney to help guide the transaction and provide sound legal counsel with a special consideration of the unique franchisee-franchisor relationship.
Additionally, the franchisor wants to protect itself from risk and liability as much as possible, just like any other business operator. The only way to do that is to pass the risk on to someone else- the franchisee.
At the same time, the franchisor wants the franchisee to operate the franchise according to its system, so that there is a consistency of quality across the entire brand.
A franchisee attorney can help the franchisor navigate the risk and understand what is at stake, and help the franchisee make an informed business decision regarding its operations, and its relationship with the franchisor.
The franchisor wants the franchisee to maximize its sales and be successful, because the franchisor will get a percentage of all of the sales. This is usually referred to as a royalty, and it is basically a licensing fee that the franchisee pays to use the franchisor’s property, its proprietary system. There may be other fees assessed on the franchisee’s sales as well, such as a marketing fund.
The franchisee pays the fees, accepts the risks of and the restrictions on its ability to operate the franchised business, and in return, the use and implementation of this system reduces the franchisee’s barrier to success because it has the advantage of a system, all that is necessary is to implement it correctly.
The franchisee is the ultimate business operator who actually offers the goods or services for sale and puts them into the stream of commerce. Regardless of the system or how proven it is for success, the business owner has the liability for its investment, and the bills for vendors, employees and landlords.
It’s important to have legal counsel for these other contractual relationships outside of the franchise agreement as well. These business interactions are still governed by the law, so it’s important to understand the obligations and liabilities of each party and how they will be enforced, or what to do If there are issues fulfilling the contract. It is also important to know the hot topics of franchise law.
The franchisor is the actual owner of the goods or services being sold- the franchisor invested to create the system and identify the system with a commercial symbol (such as a trademark).
The franchisor wants the right to control its system, its intellectual property, and of course the contract between the franchisor and the franchisee. In that way, the franchisor can ensure consistency across the entire brand, even with different operators.
The franchisor’s success is directly tied to how successful the franchisee is in its operation, while protecting and maintaining its system and consistency. The franchisor takes it seriously and has legal counsel to protect it, so the franchisee should also have its legal team in place when dealing with the franchisor.
I hope this information has been helpful. I’m Jenna Zebrowski, and I’m a real estate lease lawyer, but I’m not your lawyer yet. This information is provided not as specific counsel, but as general information to help you make an informed decision about your commercial lease. Remember, hiring a lease lawyer in often much cheaper than getting in a bad business situation. Give me a call if I can help (817) 841-5762.
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