Perhaps you have been looking at franchise opportunities in the wine, beer and spirits industry, and you have been thinking primarily about package stores. What are the rights and obligations of a franchisee, and how do you know what you will be getting?
The franchise contract
When you find the kind of franchise you think you want, you and your attorney can review the franchise contract carefully to see if the terms are in line with the information you have. There are normally two parts to the contract: the purchase agreement and the license agreement. The former will cover the franchise package itself, the price and the services the franchisee should provide. The latter will address your rights and obligations, the obligations of the franchisor, trade restrictions and termination provisions.
Use of trade names, trademarks and brand images will be among the rights the franchisor will grant you. You should also expect guidelines for conducting your franchise business in accordance with established methods and the franchisor’s instructions. You will likely receive a list of approved suppliers from which to obtain inventory at discounted prices.
You can expect a list of obligations to which you must agree:
- Follow the approved accounting system
- Do not advertise without prior approval from the franchisor
- Display only such point of sale advertising material as the franchisor directs
- Maintain the most complete insurance coverage
- Train your staff in the methods approved by the franchisor
- Maintain the premises in a neat and sanitary condition
- Permit franchisor or franchisor’s staff to enter and inspect the premises from time to time
Signing a contract
The franchise contract will have a great deal of information, which is why legal interpretation will be valuable. Make sure the terms make sense, and never sign a franchise contract that has sections you do not understand. Pay particular attention to contract terms that describe defaults and termination information. If you and your attorney find that the agreement is fair and sets forth the terms you expected and of which you approve, you may be on your way to owning a lucrative franchise in the liquor business.