Refresh on Franchisor Basics: Reserving Rights in your Franchise Agreements
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For the start-up and established franchisor alike, as your franchise system evolves continuous consideration must be given to your franchise agreement and "the legal rights that you reserve for your franchise system". That is, basic to every franchise agreement are the "reservation clauses" identifying and establishing alternative channels of distribution and legal rights that are not granted, conveyed or licensed to your franchisees. These reserved rights typically address alternative channels of distribution and markets that are expressly reserved to the franchisor. Examples include internet sales, mail order sales, captive market accounts and licensed products sold through alternative sales channels.
Chances are that your "existing franchise agreement" contains reservation clauses. However, have you recently reviewed these legal provisions? Are the reservation clauses contained in your franchise agreement generic, or do they account for your future plans for expansion? When evaluating your franchise agreements and future plans for expansion, discuss with your franchise attorney and staff:
- Potential distribution and sale of private label products;
- Potential expansion and development of alternative franchise systems;
- Licensed distribution and sale of signature products and services through non-franchised outlets; and
- Your current and future plans for internet and/or mail order based sales.
There are other points but they are all based on the fundamental fact that you must be constantly evaluating your franchise agreement to ensure that it matches where your franchise is today and where it may be ten years from now. Avoid the generic.
