Common Franchise Agreement Terms

Confidentiality Clause

A clause requiring the franchisee to keep proprietary information, trade secrets, and systems confidential.

Covenant Not to Compete (Non-Compete)

A clause restricting the franchisee from operating a competing business during and after the franchise relationship.

Default

An event or action (or failure to act) by the franchisee that violates the agreement and may lead to termination.

Force Majeure

A clause addressing how unforeseen events (natural disasters, pandemics, etc.) may affect the parties’ obligations.

Franchise Fee

The initial fee paid to the franchisor to enter the franchise system.

Franchise Term

The length of time the agreement is in force (often 5, 10, or 15 years), after which the franchisee may be able to renew.

Indemnification

An agreement that one party will reimburse or protect the other from certain legal liabilities or claims.

Initial Training

Training provided by the franchisor to new franchisees before or at the start of operations.

Operating Standards / Brand Standards

Standards the franchisee must follow to maintain consistency across the franchise system.

Personal Guarantee

A legal commitment by the franchisee’s owners or principals to be personally liable for the franchise’s obligations.

Post-Term Obligations

Requirements the franchisee must comply with after the agreement ends (such as ceasing use of trademarks and returning proprietary materials).

Royalty Fee

Ongoing payments (typically a % of gross sales) made by the franchisee to the franchisor for system support and continued use of the brand.

Site Selection

Terms describing how a franchise location will be chosen and whether franchisor approval is required.

Supply Sources / Approved Suppliers

Provisions dictating which suppliers or vendors the franchisee must use for certain products or services.

Use of Trademarks

The franchisee’s right to use the franchisor’s trademarks, logos, and brand elements — with restrictions.