[Question] Franchise Agreement

[AmithS]

Hi All,

Is it normal for franchise agreements to contain a clause that states you cannot enter into any other frachise agreement without the approval of the franchise company you are currently signing up with?

Additionally what would the implications of this be, is it strictly upheld ?

Thanks in advance

[Sieg]

Franchise agreement

It would be quite normal for a franchise agreement to contain such a clause to protect the interests of the franchisor (the franchise grantor). Imagine if you are a KFC franchisee and you also obtain a Macdonalds franchise which you open up next door, in direct competition to KFC? They would not be very happy with you.

Regards
Sieg

[AmithS]

Hi,

I 100% agree with you.

However i wonder how strict they are on that clause for example if i open up a franchise in a different industry all together like example i own a kfc and i want to open a Hi-Q ?

[Dave A]

That would be at the discretion of the franchisor/s involved. I've heard of some franchisors that allow it, and some that don't. One of the key issues is the level of reliance on the presence of the owner in the franchise.

[Conan]

One of the most important terms of most franchises is that the owner must be the manager too. That's why they have that clause in the contracts. In my experience once the franchise is up and running and the royalty fees gets paid every month nobody is going to lift an eyebrow. One of my friends owns two branches(one is run by his wife) of a franchise and holds a full time job. My wife is also a franchise owner and it might be different from franchise to franchise but as long as she pays, no problems, she has actually appointed a manager and everything is running smoothly. I would say it depends on how well you can manage both, very important to the franchise that their name will not be getting damaged by bad or lack of management at a branch. Your choice off course but in most cases I wouldn't bother to inform them if I want to buy another (different sector) franchise.