The franchise agreement: what to read before you sign

A franchise agreement is the only document that survives the sales conversation. Whatever was promised verbally, the agreement is what will be enforced. Read it in this order.

Term and renewal

How many years, and what happens at the end? Look for whether renewal is automatic, at the franchisor's discretion, or conditional on a fresh fee. A short term with discretionary renewal means your fit-out has to pay for itself faster than you might assume.

The fee structure

Separate the one-time fee from the recurring ones. Check whether royalty is on gross sales or net sales, whether there is a minimum guarantee regardless of turnover, and whether marketing and technology fees are charged on top. A "5% royalty" with a 2% marketing fee and a fixed monthly software charge is not a 5% cost.

Territory

The most disputed clause. Confirm:

• The exact boundary, as pin codes or a map.
• Whether it is exclusive, and for how long.
• Whether the franchisor may sell online or through other channels into your area.
• Whether exclusivity depends on you hitting sales targets.

Supply and pricing

If you must buy from the franchisor or a nominated supplier, your margin is set by someone else. Ask whether supply prices can be revised unilaterally, what the delivery commitment is, and what remedy you have if supply fails.

Standards, audits and defaults

Every agreement gives the franchisor inspection rights. Check what counts as a breach, whether you get a cure period, and how many notices precede termination. Broad "brand image" clauses give wide discretion — ask for objective standards where you can.

Your obligations

Minimum staffing, opening hours, mandatory refurbishment during the term, minimum purchase quantities, local marketing spend. Refurbishment clauses in particular can require a fresh capital outlay years after opening.

Exit and transfer

The clauses people read last and regret first:

• Can you sell the business? To whom, with whose approval, and at what transfer fee?
• What happens on death or incapacity?
• Is there a post-term non-compete, and how wide is it in area and time?
• What are you required to do with stock, equipment and signage at the end?

Dispute resolution

Check the governing law, the seat of arbitration and the jurisdiction. An agreement that requires arbitration in a city on the other side of the country raises the cost of enforcing your own rights.

Practical advice

Ask for the agreement early, not on the day of signing. Have a lawyer or chartered accountant familiar with franchising read it. Ask for changes — some franchisors will not move, but the ones who explain why are telling you something useful about how they will behave later.

Related reading

• Questions to ask a franchisor
• Glossary — definitions of the terms above.

This article is general information, not legal advice. Take professional advice on your specific agreement.

Frequently asked questions

Is a franchise agreement negotiable in India?

Parts of it usually are. Brands rarely move on fees, brand standards or the term, but territory boundaries, the opening timeline, renewal conditions and personal guarantees are often discussed. Ask in writing, keep every change inside the signed document, and treat a refusal to change anything at all as information about how the relationship will run.

Does a franchise agreement have to be registered in India?

There is no franchise-specific registration law in India. The agreement is a commercial contract governed by the Indian Contract Act, with trade mark, competition and consumer law around it. Stamp duty applies as per the state where it is executed, and any trade mark licence terms should match what the registry shows. Have a lawyer in your state confirm stamping before you sign.

What is a typical franchise term and renewal period?

Five years with an option to renew is common in India, though it ranges from three to ten depending on how much fit-out capital you sink. What matters more than the number is the renewal condition: check whether renewal is automatic on good standing, whether a fresh fee is charged, and whether the brand can re-cut your territory at renewal.

What happens to my outlet if the franchisor terminates?

Read the termination and post-term clauses together. They usually require you to stop using the brand, de-identify the premises at your cost, return manuals and stop trading under any confusingly similar name for a set period and radius. Check whether you may sell your equipment and stock, and whether the brand has an option to buy the unit at a stated formula.

Should a lawyer review the franchise agreement?

Yes, and before any deposit changes hands. A commercial lawyer will typically spend a few hours on it, which is small next to the capital at risk. Ask them specifically about territory, termination triggers, personal guarantees, the dispute forum and how a transfer to a buyer would work.