Interview – “The Franchise Agreement Should Clarify Rights and Obligations”

he won:Before signing the contract, potential franchisees inform themselves about the system in question. Is there information that the franchisor is not required to pass on to future partners?

Thomas Schneider: Of course there are company secrets, like the hamburger recipe, that you don’t reveal in the initial meeting. Therefore, trade secrets are certainly withheld as they are not necessary for the conclusion of the contract per se. But of course there are key points that need to be mentioned so that the franchisees can talk to the bank about financing, for example. In addition to the contract, knowledge documents that describe the system in detail are important. This should only be delivered when the contract has been signed and the cancellation period has expired and the concession entry fee has also been paid.

he won: What are the key points when reviewing a franchise agreement?

categorical: The franchise agreement should clearly define rights and obligations. You should check whether the subject matter of the contract is described correctly. Good franchise agreements contain an indication that the franchisor is operating as an independent business. When it comes to industrial property rights, not only is trademark relevant, but also social media and domains: what do I have to hand over to the franchisor and what happens when the contract is terminated? Mistakes happen here too: what are the tasks of the franchisor headquarters and what products or services does the system offer? Is there regional protection or a 100% commitment to purchase? You must also regulate data protection and a contractual (consequential) non-compete clause, which can be agreed under certain conditions for up to twelve months. The controversial point is contractual penalties. Warranty, liability and consequences of termination should also be made clear, such as how leftovers will be handled.

he won:What is the appropriate contract period?

categorical: Germany has more case law than Austria. Concession contracts there, which are entered into for a limited period of time, also generally last for ten years, but without purchase commitments. Under certain circumstances, a contract term of 20 years is justified. At a minimum, we have a period of between three and ten years, because without that there is no depreciation at all and the contract could be immoral at the expense of the concessionaire. If an exclusive purchase commitment is agreed, in which the partner must purchase all products from the specified franchisor or supplier, the contract must not initially last longer than five years.