Or, to be blunt, is the franchisor simply lazy and can’t be bothered to seek trademark registration? This is more unlikely in the disclosure jurisdictions of Alberta, Ontario, New Brunswick, PEI, and soon Manitoba, as there are particular disclosure matters with respect to intellectual property and trademarks. The higher legal and accounting costs to enter the market for franchisors in these jurisdictions tends to weed out the undercapitalized franchisors, the fly-by-nighters and bottom feeders that give franchising a dubious reputation.
8. Remember, when you’re acquiring rights to a franchised business you don’t own them. You are simply renting the rights. You’re renting the franchisor’s business systems, methods and trademarks for a limited period of time – normally with options to renew in multiples of five or 10 years. Once the term and all renewal terms have been exhausted, that’s it. You have no more rights to be a franchisee of this system in the same way as when a lease ends, you have no more rights to occupy the premises.
One important thing to note with renewals of franchise agreements is that they are not automatic. There are certain conditions the franchisee must satisfy under the franchise agreement to be entitled to them. For example, if the franchisee is not in compliance under its agreement or there is a non-payment of amounts due to the franchisor, or the franchisee is in a default over operational matters, it is within the franchisor’s right to decline a renewal to that franchisee.
Assuming you wish to be entitled to renew your agreement when it ends in five or 10 years, be wary of the requirement that the franchisee execute the franchisor’s “then current standard form of franchise agreement that may contain different terms and conditions then the ones prescribed herein.” This means the franchisor can change the agreement you signed today at the time of renewal in five years.
This isn’t altogether unusual as the franchisor might wish to update its agreement to be in compliance with changes in the law. It also means it can raise royalties, advertising funds, expenditures, and other monetary obligations and this, too, is normal.
Here is what you want to watch out for: If you have acquired a protected territory when you entered the agreement in 2012, do you want the franchisor reducing that protected territory at renewal time in five years simply because of the franchisor’s right to change the agreement? I would hope not, but it’s done all the time.
All matters particular to you, your location and the deal you strike in 2012 should, where possible and practical, extend to cover a renewal franchise agreement in five or 10 years. Otherwise, all those business terms that were negotiated in 2012 when you entered into the agreement may very well disappear in a puff of smoke when it comes time to renew because of the franchisor’s right to provide to you with its “then current standard form of franchise agreement.”
Never believe that franchising is a simple and straightforward area where franchisees don’t need the best advice possible. Most franchisee have mortgaged their house or borrowed from family members to acquire their franchise rights. They risk everything, including the family home, for the venture.
But it is fundamentally important to know the ins and outs of franchising, what’s normal in franchise agreements, what probably should be left alone, and what may be negotiated so you get the best deal when you sign on the dotted line.
Special to The Globe and Mail
Tony Wilson practices franchising, licensing and intellectual property law at Boughton Law Corp. in Vancouver, and he is an adjunct professor at Simon Fraser University. His newest book, Manage Your Online Reputation, was recently published. His column appears every other Tuesday on the Report on Small Business website.
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