Prospective franchise businessmen should equip themselves with the knowledge of franchise terms such as successor agreement. It is not a simple term and every entrepreneur who wishes to join the franchise business should know its ins and outs.
What is a successor agreement?
Michael Seid of MSA Worldwide.com, an advisory firm that specializes in franchising, defines the successor agreement as:
The franchisee’s ability to continue in the business for additional terms following a successful completion of their initial term.
Different franchise businesses require various requirements from the franchisee to have a successor agreement. In most cases, the franchise agreement should be made after a franchisee makes capital changes or improvements to the franchise business for the development of the brand. The capital improvement requirement may vary in amount or form based on what the franchisor requires.
Normally, if a franchise business is doing okay, there is no reason why the franchisor will not grant continuance of the business venture. In his book Franchising for Dummies, Michael Seid mentioned that:
To enter into a successor agreement to continue the relationship, the franchisee should sign a new franchise agreement.
It does not have to be exactly the same as the original franchise agreement that was signed at the start of the franchise relationship. Due to some changes implemented in the continuance of the franchise relationship, there may be differences in the details of the new franchise agreement.
Free Franchise Docs illustrates this in their sample document where it mentions,
“…you maintain possession of and agree to remodel and/or expand the FACILITY, add or replace improvements and Operating Assets and otherwise modify the FACILITY as we require to comply with specifications and standards then applicable for (name of business)…”
As a franchisee, why do you need it?
According to Fundamentals of Franchising by Barkoff, et al, the franchising agreement renewal rights are granted via the successor agreement. This can assure the franchisee’s continuing right to occupy the premises again for a specified period of time. Normally, the successor franchise agreement will bear the privileges, rights and responsibilities of the franchisee. Some examples are : details of the successor franchisee fee, details to execute releases, time frame for the responsibilities and obligations of the franchisor and franchisee. In cases where the franchisor decides not to continue with the franchise, the franchisor furnishes a list of deficiencies or reasons why a continuance was not allowed. The franchisee can then comply and improve what the list indicates so an agreement can be signed for another term.
Why does the franchisor need it?
The renewal or successor agreement may be different from what was originally signed when the franchise contract started. Franchisors may demand more from franchisees or require more obligation. The franchisor can ask for a higher percentage fee or other required tasks like remodelling or revision of some facilities or structures. It will also include the number of days that the franchisee has to comply with these requirements.
How is it used to resolve liability issues?
The successor agreement can help both the franchisor and the franchisee to avoid business issues in the future. In issues of disputes regarding fees, deadlines and obligations of either party, the successor franchise agreement can help settle these. It also avoids late submission of paperwork because this and other documents are required before the successor agreement is signed. Franchisees are also safeguarded because they can express their intent to renew the contract and continue with the partnership and franchisors cannot decline this without a vlid reason or without proper notice. Lastly, the successor franchise agreement can be a chance for both the franchisee and the franchisor who may want to improve their business relationship
In any franchise business it is always best to have a good relationship established between the franchisor and the franchisee. It starts with laying the cards on the table. A good business relationship starts with picking the best business partner. Are you ready to start a franchise business with the best auto detailing experts in town? Check out DetailXperts. Begin the application process now!
Enjoyed this post? Sign up for our newsletter to receive more valuable business and franchise info, ideas, and extras!