Skip to 0 minutes and 9 secondsWhat else needs to be covered to protect the franchisor's interests and make sure the master franchisee gets value for their investment?

Skip to 0 minutes and 21 secondsAll relationships involved in franchising have the potential to generate disputes. If disputes cannot be resolved informally, then either the relevant contract or the relevant law will direct the parties what steps should be taken to resolve their dispute. The grant of a franchise is almost always for a fixed term. That's the number of years the agreement or the law commits the parties to the relationship for. Whether a contract is between people from the same country or people from different countries, there will usually be a governing law clause. This will set out the law that will be applied to the interpretation of the contract and the resolution of any disputes. An increasing number of countries have enacted special franchising laws.

Skip to 1 minute and 9 secondsAnd even if this is not the case, there may be widely accepted codes of conduct that people involved in franchising would expect to comply with. We will look at this in more detail in module 3.

Skip to 1 minute and 25 secondsWhen a franchisor is appointing a master franchisee or area developer, it will typically grant the right to operate within a specific territory. Because these high-level operators perform pivotal roles in introducing a brand into a new market, the franchisor wants to be sure the master or area developer is going to deal a thorough job. Franchisors may decide to manage their risk by, for example, appointing two developers to the same area for a period and then awarding the master licence to the more successful of them. Alternatively, they may grant collapsing areas, progressively reducing the territory as the brand is established. Or they may grant exclusivity for a limited time.

Skip to 2 minutes and 13 secondsBefore finalising territory negotiations, franchisors need to think carefully about whether they will include reference to carve-outs in the agreement. For example, in relation to the Olympic Games, the franchisor much want to grant the right to carve out that event so that the franchise could be offered to an operator with experience of large productions. A franchisor drafts its franchise agreement in its native language. But this will often not be the language of the master franchisee or of the target country. Many countries require legal documents to be written in specific languages.

Skip to 2 minutes and 52 secondsAgreements will, therefore, needs to be translated and retranslated to ensure that they are enforceable in the target country, and that they are well understood, and that they mean what the franchisor intended them to mean. Before finalising franchise documentation, both parties need to identify all the big commercial risks and ensure that provision has been made for them in the contract. This could include the risk of political instability, or criminal conduct by one of the parties, or business failure. Also, natural disasters, or anything else that would jeopardise the future reputation and viability of the brand in the target country. Next, join the discussion forum and add your thoughts about what needs to be included in a due diligence checklist.

Skip to 3 minutes and 43 secondsThere are some headings for you to get started. Feel free to translate the headings into your own language and create your own thread in your language.

Other things to think about before venturing to another country

What else needs to be covered to protect the franchisor’s interests and make sure that the master franchisee gets value for their investment?

In this video we address the following key considerations for franchisors before they expand into a new jurisdiction:

  • Commercial risks
  • The duration of a franchise agreement
  • Governing law clauses
  • Territorial rights
  • ‘Carve-outs’
  • Language
  • Dispute resolution

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This video is from the free online course:

International Franchise Law: the World is Yours

UNSW Sydney

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