Do Franchise Agreements Have to be Long?
No. Franchise agreements can be short. The shortest franchise agreement I currently use is 8 pages (plus 9 pages of exhibits, for a total of 17 pages). The longest I use is 71 pages (plus 103 pages of exhibits, for a total of 174 pages).
Why is one so short and the other so long? There are three main reasons:
- The complexity of the franchise system. The short franchise agreement is for a very simple system. The franchisee does not have to lease real property. Training is minimal. Either party has the right to terminate on 60 days’ notice. The franchisee’s investment is less than $8,000.
In contrast, the long franchise agreement is for a full-service casual dining restaurant with a full bar. The franchisee must purchase or lease real property, build it out, equip it, and decorate it. The franchisor provides four levels of training and opening assistance. The franchisee’s investment may be $3,000,000 or more, so both parties want the agreements to state all aspects of the franchise relationship in full and complete detail.
- The level of protection the franchisor needs. The franchisor with the short agreement operates on a cash basis: its revenues come from the sale of products to its franchisees. It has very little confidential information.
The franchisor with the long agreement receives a monthly royalty (thereby extending credit for the royalties accrued, which requires the franchisee’s owners to provide personal guaranties). It provides multiple levels of the franchisee’s organization with large amounts of confidential information (and must protect it with thorough confidentiality agreements and covenants not to compete).
- What the franchise system offers. The franchisor with the short agreement offers a single-unit franchise, fixed fees, and no advertising.
The franchisor with the long agreement offers a multi-unit franchise, including the opportunity to develop outlets in nontraditional locations (like airports and food courts). Its royalty varies with the franchisee’s gross sales. It manages a national advertising fund that provides advertising programs and media to franchisees nationwide.
Here’s the point: the length of the franchise agreement is usually driven by the complexity of your franchise system, your need for protection, and what your system offers franchisees. A skilled and experienced franchise attorney can help you determine what you should include, and can present you with a well-drafted suite of documents that is as short or as long as your needs require.