What is a franchise agreement?
Franchise Agreement · contrato de franquicia · اتفاقية الامتياز · 特许经营合同
The franchise agreement is the binding contract between franchisor and franchisee that grants the license and sets the rules: term length, territory, fees, operating standards, renewal and termination conditions, transfer rights and dispute resolution. It — not the sales conversation — defines the relationship.
Terms commonly run 5–20 years. Investors should have local franchise counsel review the agreement in every jurisdiction involved, especially for cross-border master and area-development deals where governing law, currency and tax treatment add complexity.
In practice
The agreement you review is usually the franchisor's standard form, and negotiated changes are often recorded in an addendum rather than by editing the main text. Under the US FTC Franchise Rule, if the franchisor unilaterally and materially alters the standard terms, you must receive the revised agreement at least seven calendar days before signing. The operations manual referenced by the agreement may be updated during the term, so obligations can grow after you sign. A common misunderstanding is that renewal repeats the original terms.
Not to be confused with
The franchise agreement is the binding contract; the FDD is the disclosure delivered before it, with the agreement attached. A development agreement grants rights to open future units and sits alongside unit franchise agreements. A lease or supply contract signed with the franchisor's affiliate is a separate agreement with its own terms.
What to check before you sign
- What counts as a non-curable default allowing immediate termination, and how long do you have to cure other breaches?
- What non-compete applies after the agreement ends, covering which businesses, within what distance, and for how long?
- Which country's law governs the agreement, where must disputes be heard, and is arbitration or mediation mandatory?
Questions to raise with the franchisor and your own adviser — general information, not legal advice. Rules differ by country.
📌 Also sourced from
- 16 CFR 436.2 — Obligation to furnish documents (Legal Information Institute) ↗ — inPractice: revised agreement at least seven calendar-days before signing when the franchisor unilaterally and materially alters the terms
- FTC — A Consumer's Guide to Buying a Franchise ↗ — inPractice: on renewal, fees and other contract terms may change
- 16 CFR 436.5 — Disclosure items (Legal Information Institute) ↗ — notToConfuse: Item 22 attaches the franchise agreement and any lease, options and purchase agreements; checks: Item 17 table covers curable and non-curable defaults, non-competition covenants, arbitration or mediation, choice of forum and choice of law
Related terms
See it in practice
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