Business Magazine recently published an insightful analysis of the use of the franchise model in Mauritius, which is available for download here with their permission. Tania Li was pleased to contribute to the publication.
For businesses looking at franchising options, here are some of the points to consider, which are addressed in further detail in the publication.
- There are generally two types of franchise agreements. Under the ‘master agreement’, the franchisor grants a sub-franchisor in a specified territory or region the right to enter into franchise agreements with third party franchisees to allow them to operate the concept. The simple ‘franchise agreement’, on the other hand, is entered into by the franchisor and the franchisee.
- The franchise agreement is generally governed by the law of the jurisdiction of the franchisor, although it may also be subject to certain provisions of the law of the jurisdiction where the franchisee operates, such as anti-competitive practices, fair trading principles and consumer protection.
- Some franchise models require the prospective franchisee to pay an entrance fee for the grant of the franchise rights in a certain geographical area and for a fixed period of time.
- It is common for a franchise agreement model to provide that the franchisor will (i) allow the franchisee to use its intellectual property in consideration for a fixed fee and a percentage of the turnover of the franchisee, (ii) provide the personnel of the franchisee with the requisite training to allow the franchisee to comply with its brand standards, and (iii) assist the franchisee with marketing.
- The franchisee is generally required to follow the Standard Operating Procedures (SOP) guideline set by the franchisor for branding and day-to-day processes. As such, franchisees may need to factor the costs of these processes in their budgeting exercise.
- The SOP may also require the franchisee to procure certain supplies exclusively from the franchisor.
- Franchise agreements generally provide for audit exercises to be conducted by the franchisor to monitor the franchisee’s compliance with the SOP.
- Franchise agreements generally include exclusivity and non-solicitation clauses and impose penalties on franchisees in cases of contractual breaches by the franchisee.
- Franchisees need to consider negotiating cure periods to allow them to remedy any breach of the agreement.
- It is also common to see disputes under franchise agreements referred to arbitration because of the advantages that it offers as opposed to court proceedings.
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