Franchise Agreement - Template, Sample Form to Complete Pro · EN-CA-law

________

FRANCHISE AGREEMENT

THIS FRANCHISE AGREEMENT is made effective as of ________ (the "Effective Date").

BETWEEN:

________
a corporation incorporated under the laws of ________, having its registered office at ________
(hereinafter the "Franchisor")

OF THE FIRST PART

- AND -

________
a corporation incorporated under the laws of ________, having its registered office at ________
(hereinafter the "Franchisee")

OF THE SECOND PART

- AND -

________
of ________
(hereinafter the "Guarantor")

OF THE THIRD PART

(hereinafter collectively referred to as the "Parties")

WHEREAS the Franchisor owns, controls or is licensed to use certain trademarks, trade names, patents, copyrights, trade secrets, and other distinguishing intellectual property in the business of ________;

AND WHEREAS the Franchisor has developed a distinctive business system, format, methods, standards, know-how and goodwill operated under the name ________;

AND WHEREAS the Franchisee wishes to obtain, and the Franchisor is willing to grant, a franchise to operate the Franchised Business in accordance with the terms and conditions of this Agreement;

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NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged), the Parties agree as follows:

ARTICLE 1
INTERPRETATION

A. Definitions. In this Agreement, the following terms shall have the following meanings:

I. "Agreement" means this Franchise Agreement and all schedules and amendments hereto;

II. "Franchised Business" means the business operated under the name ________ in accordance with the Franchisor's system;

III. "Franchise Fee" means the initial fee payable pursuant to Article 3;

IV. "Gross Revenue" means all revenue of every kind derived from the operation of the Franchised Business, excluding only applicable sales and goods and services / harmonized sales taxes collected on behalf of taxing authorities and bona fide refunds to customers;

V. "Geographic Area" means the following location:

________

B. Currency. All references to dollar amounts are to Canadian currency unless otherwise stated.

ARTICLE 2
GRANT, TERM AND RENEWAL

A. Grant and Term. The Franchisor hereby grants to the Franchisee the right and licence to operate the Franchised Business known as ________ within the Geographic Area for a term of ________ commencing on the Effective Date (the "Term"), unless earlier terminated in accordance with this Agreement.

B. Acceptance. The Franchisee accepts the franchise and agrees to operate the Franchised Business in accordance with this Agreement.

C. Renewal. The Franchisee may elect to renew this Agreement for an additional term of ________ upon the prior written approval of the Franchisor, which approval shall not be unreasonably withheld. Such approval shall be contingent on the Franchisee: (i) having complied in all material respects with the provisions of this Agreement; (ii) giving written notice of its intention to renew at least ________ prior to the expiry of the Term; (iii) executing the Franchisor's then-current form of franchise agreement; (iv) making such modifications, renovations or refurnishings to the premises, at the Franchisee's sole expense, as may be reasonably required to meet the Franchisor's then-current standards; and (v) paying a renewal fee of $________ (________). In the event renewal approval is not granted, this Agreement shall continue on a month-to-month basis terminable by either Party on thirty (30) days' written notice.

D. Geographic Area. The Franchisee shall operate the Franchised Business only within the Geographic Area. During the Term, the Franchisor shall not, directly or indirectly, operate or grant to any third party the right to operate a competing franchised business of the same type within the Geographic Area, subject to the Franchisor's reserved rights to engage in alternative channels of distribution (including e-commerce) outside the Franchised Business.

ARTICLE 3
FEES

A. Franchise Fee. The Franchisee shall pay to the Franchisor an initial Franchise Fee of $________ (________) plus applicable taxes.

B. Refund of Franchise Fee. Where this Agreement is rescinded or cancelled in accordance with applicable franchise legislation, or where the Parties do not proceed with the grant of the franchise prior to commencement of operations, the Franchise Fee shall be refundable to the extent and within the time required by applicable law, less only amounts the Franchisor is entitled to retain at law.

C. Royalties. During the Term, the Franchisee shall pay to the Franchisor ongoing royalties equal to ________ percent (________%) of the total Gross Revenue, plus applicable taxes.

D. Dates of Payment. The initial Franchise Fee shall be paid upon execution of this Agreement or within such reasonable time as the Parties may agree. Royalties shall be paid on or before the ________ day of each month in respect of the preceding month.

E. Method of Payment. The Franchisee shall make payments to the Franchisor as follows:

1) The initial Franchise Fee shall be payable by ________, using the following information: ________.

2) Royalties shall be payable by ________, using the following information: ________.

F. Late Payment. The Franchisee shall pay interest on any overdue amount at a rate of ________ percent (________%) per annum, compounded monthly, provided that such effective annual rate shall not exceed the maximum permitted by section 347 of the Criminal Code, R.S.C. 1985, c. C-46.

G. Non-Sufficient Funds. The Franchisee shall be responsible for any charges or expenses incurred in connection with returned cheques or non-sufficient funds.

H. Advertising Fee. The Franchisee shall contribute to the Franchisor's advertising and marketing program as set out in Article 4.

I. Additional Costs. The Franchisee shall be solely responsible, at its own expense, for the initial inventory, initial promotions, the lease of the premises, the chattels and fixtures, and all supplies and equipment required to operate the Franchised Business.

ARTICLE 4
ADVERTISING

A. Advertising Control. All decisions concerning advertising and marketing, including the media outlets, platforms, promotional content, broadcasting, printed materials, flyers, coupons, radio, television, and social media, shall be made by the Franchisor. Any marketing or promotional materials created by the Franchisee shall require the prior written approval of the Franchisor before any use or dissemination, and the Franchisor may decline such approval in its discretion. The Franchisee acknowledges that the advertising program benefits the system as a whole and that no direct or proportionate benefit need accrue to any individual Franchisee.

B. Advertising Fee. The Franchisee shall pay to the Franchisor a monthly advertising contribution of ________ ($________), plus applicable taxes.

C. Accounting for Advertising Fund. Upon reasonable written request, the Franchisor shall provide to the Franchisee, as soon as practicable, a reasonable accounting of the administration and use of the advertising fund.

ARTICLE 5
ACCOUNTING

A. Accounting Records. The Franchisee shall maintain accurate and complete accounting records of all financial and business transactions throughout the Term and any renewal, and for such period thereafter as may be required by law. All records shall be maintained in accordance with generally accepted accounting principles applicable in Canada.

B. Revenue Disclosure. The Franchisee shall deliver to the Franchisor, on a monthly basis, a revenue report setting out the Franchisee's Gross Revenue and such other information as the Franchisor may reasonably require, certified by an authorized officer of the Franchisee.

C. Financial Statements. The Franchisee shall provide to the Franchisor financial statements of the Franchised Business and such other information as the Franchisor may reasonably require from time to time.

D. Bookkeeping Disclosure. The Franchisee shall provide to the Franchisor such bookkeeping records and operational documents as the Franchisor may reasonably require from time to time.

E. Audit. The Franchisor may, at its own expense, audit the Franchisee's operations during normal business hours upon at least ________ prior notice delivered by mail, e-mail, fax, courier or other means. Such audit may include all revenue, business and accounting records, bookkeeping records, invoices, sales receipts, payroll records, bank deposit receipts, and the corporate records and minute books of the Franchisee. If the audit is necessitated by the Franchisee's failure to disclose required records, or if the audit discloses an understatement of Gross Revenue in excess of five percent (5%) for any period, the Franchisee shall bear the reasonable cost of the audit and shall promptly pay any deficiency, together with interest at the rate set out in Article 3.

F. Taxes. The Parties shall comply with the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), the Excise Tax Act, R.S.C. 1985, c. E-15, and all applicable provincial tax legislation. The Franchisee is an independent contractor responsible for all of its own statutory remittances and income tax obligations.

ARTICLE 6
FRANCHISEE OBLIGATIONS

A. Preliminary Obligations. Prior to opening, the Franchisee shall obtain, at its sole expense, all licences, permits and approvals necessary for the operation of the Franchised Business.

The Franchisee shall complete the mandatory training course at the Franchisor's designated facilities before ________.

The training shall be for ________ and shall consist of the following:

________

If the training course is not completed by such time, the Franchisor may terminate this Agreement on fourteen (14) days' written notice, in which case the Franchise Fee shall be refundable as described herein, subject to a reasonable administration fee of ________ ($________). Where the Franchisee is unable to complete training within the prescribed deadline, the Franchisor shall grant a reasonable extension of fourteen (14) days.

B. Continuing Education. The Franchisor may from time to time implement conventions, seminars and training courses to provide continuing education and updates to the Franchisee. The Franchisor shall bear the cost of developing such programs, while the Franchisee shall bear the cost of its attendance.

C. General Ongoing Obligations. The Franchisee shall comply with the following ongoing requirements:

1) Quality Control: The Franchisee shall sell only such goods and provide only such services as are authorized by the Franchisor in accordance with the established standards and protocols, and shall not sell unauthorized goods or services. The premises shall at all times during business hours be under the supervision of the Franchisee or an approved manager. The Franchisee shall display only approved signage and materials, and shall maintain a high standard of ethical conduct in all dealings with suppliers, customers and the public.

2) Standards and Operating Procedures: The Franchisor shall provide an operating manual describing the prescribed processes and methods, which shall comply with applicable law. The Franchisee shall further adhere to the following standards:

________

3) Authorized Supplier: The Franchisee shall order and purchase its primary supplies exclusively from ________, subject to applicable competition law.

4) Insurance: The Franchisee shall maintain, at its sole expense, comprehensive general liability insurance, fire and extended coverage insurance, and commercial property insurance in an amount of not less than two million dollars ($2,000,000.00) per occurrence, naming the Franchisor as an additional insured, for the entire Term and any renewal. The Franchisee shall provide evidence of such insurance upon request.

5) Premises Maintenance and Sanitation: The Franchisee shall keep the premises, chattels, fixtures and wares clean, sanitary and in good repair, in compliance with all applicable health, safety and occupational legislation, and shall promptly remedy any deficiency identified by the Franchisor.

6) Inspection: The Franchisor may inspect the premises during business hours to confirm compliance with this Agreement, and the Franchisee shall promptly remedy any breach or deficiency identified. Any non-compliant product or service shall be removed from the premises.

D. Final Obligations. The Franchisee shall retain its accounting and business records for a period of three (3) years following the expiry or termination of this Agreement to permit the Franchisor to conduct a final audit.

ARTICLE 7
FRANCHISOR OBLIGATIONS

A. Preliminary Obligations. The Franchisor shall provide to the Franchisee the initial training program described herein.

B. Ongoing Obligations. The Franchisor shall provide continuing education and ongoing guidance, know-how, information and advice as may reasonably be required from time to time, and shall act in accordance with the duty of fair dealing imposed by applicable franchise legislation.

C. Training Cost. The Franchisor shall bear the initial cost of developing the training program and associated modules.

ARTICLE 8
INTELLECTUAL PROPERTY

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B. Enhancements. Any enhancements, improvements or innovations to the intellectual property or system made by the Franchisee shall be the property of the Franchisor without compensation to the Franchisee, and the Franchisee hereby assigns all such rights to the Franchisor.

C. Confidential Information. The Franchisee acknowledges that all information provided by the Franchisor is confidential and proprietary, and agrees to maintain such information in confidence at all times during and after the Term, and not to use it for any competing purpose.

D. Use of Intellectual Property. The Franchisee shall use the intellectual property only in connection with the authorized sale of goods or services and in accordance with the Franchisor's standards. The Franchisor may enter any location where the Franchisee operates to inspect the use of its intellectual property and to confirm there are no unauthorized sales.

E. Marking. Any use of the marks of the Franchised Business shall identify the Franchisee as a licensee of ________. The Franchisee shall, at the Franchisor's request, conspicuously display a notice stating:

This ________ is a franchised business of ________ and is a licensee of its intellectual property.

F. Infringement. The Franchisee shall not challenge or infringe the Franchisor's intellectual property. The Franchisor may commence such legal proceedings as it deems necessary, and the Franchisee shall, upon request, cease using or amend any disputed mark.

G. Legal Proceedings. The Franchisee shall reasonably cooperate with and assist the Franchisor in any legal proceedings relating to this Agreement or its intellectual property.

ARTICLE 9
TRANSFER OF FRANCHISE

A. Franchisor Rights. The Franchisor may at any time transfer or assign all of its rights and obligations under this Agreement. If the Franchisee receives a bona fide offer to purchase the Franchised Business, the Franchisor shall have a right of first refusal exercisable within thirty (30) days of receipt of notice of such offer from the Franchisee.

B. Franchisee Restrictions. The Franchisee shall not transfer, sell, assign or encumber, in whole or in part, any rights or obligations under this Agreement without the prior written consent of the Franchisor, such consent not to be unreasonably withheld. Any purported transfer in contravention of this section shall constitute a default and grounds for termination.

C. Transfer Request. Upon a request by the Franchisee to transfer, sell, assign or encumber this Agreement, the Franchisor's consent shall be determined having regard to the proposed transferee's screening, creditworthiness, ability and qualifications. Prior to granting consent, the Franchisor may require:

a. the Franchisee's performance of its obligations and absence of default;

b. the transferee's suitability and potential;

c. payment of a reasonable transfer fee;

d. successful completion of the Franchisor's training program by the transferee;

e. a full and final release executed by the Franchisee in favour of the Franchisor.

D. Death. Upon the death of the Franchisee or its principal, the estate may transfer the Franchised Business to the estate trustee or to the surviving spouse, subject to the Franchisor's prior approval based on the ability to operate the Franchised Business appropriately. If the Franchisor operates the Franchised Business during any interim period, it shall be reasonably compensated by the estate.

E. Incapacity. In the event of permanent incapacity (defined to include any cessation of performance by the Franchisee for a period exceeding six (6) months in any twelve (12) month period), the Franchisee may transfer its interest to a spouse or another qualified principal, subject to the Franchisor's prior approval. If the Franchisor operates the Franchised Business during any interim period, it shall be reasonably compensated.

F. Change of Control. Any change in control of the Franchisee resulting in voting power of less than fifty-one percent (51%) being retained by the existing principals shall be deemed a transfer of the Franchise constituting a default. Where the Franchisee is a corporation, any transfer of voting shares exceeding fifty-one percent (51%) shall be deemed a transfer.

ARTICLE 10
TERMINATION OF FRANCHISE

A. Right of Termination. Subject to applicable law, the Franchisor may terminate this Agreement upon written notice to the Franchisee specifying the breach or default, including failure to make payment, where the Franchisee fails to remedy such default within thirty (30) days of such notice.

B. Events of Default. The Franchisor may terminate where the Franchisee has not cured a default within thirty (30) days (or such shorter period as may be permitted by law for incurable defaults), including where:

• the Franchisee becomes insolvent or bankrupt, makes an assignment for the benefit of creditors, or is adjudicated bankrupt or insolvent;
• the Franchisee's business or any part thereof is seized or sold by order of a court or in creditor proceedings not satisfied within ten (10) days;
• the Franchisee is convicted of an offence materially detrimental to the Franchisor or the system;
• the Franchisee abandons or ceases to operate the Franchised Business;
• the Franchisee fails to satisfy the Franchisor's standards on two or more occasions and fails to remedy the same;
• the Franchisee is in default of any other agreement with the Franchisor;
• the Franchisee attempts to transfer or assign this Agreement in breach of Article 9;
• the Franchisee repeatedly fails to comply with material provisions of this Agreement.

C. Post-Termination Obligations. Upon termination, the Franchisee shall immediately cease all use of the Franchisor's intellectual property, including all names and marks, and shall cease to hold itself out as part of the Franchise. The Franchisee shall transfer to the Franchisor all manuals, records and files, and shall pay all amounts owing to the Franchisor, including reasonable legal costs in connection with the termination. The Franchisee shall take all steps reasonably necessary to effect an orderly transition, including the transfer or de-listing of telephone numbers and online listings associated with the Franchised Business.

ARTICLE 11
DISPUTE RESOLUTION

A. Negotiation. In the event of any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity thereof, the Parties shall first attempt to resolve the dispute amicably through good faith negotiations. Either Party may initiate negotiations by written notice setting out the nature of the dispute.

B. Mediation. If the dispute is not resolved within thirty (30) days of such notice, the Parties shall submit the dispute to mediation before a mutually agreed mediator at a location mutually agreed upon. The costs of mediation shall be shared equally.

C. Arbitration. If the dispute is not resolved through mediation, it shall be referred to and finally resolved by arbitration administered by a single arbitrator in accordance with the applicable arbitration legislation of the province in which the Franchised Business is located. The seat of arbitration shall be ________. The decision of the arbitrator shall be final and binding, and judgment upon the award may be entered in any court of competent jurisdiction. Nothing herein restricts any right a Party may have under applicable franchise legislation, including the right to commence an action for rescission or for damages for failure to comply with disclosure obligations.

D. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of ________ and the laws of Canada applicable therein, and the Parties attorn to the jurisdiction of the courts of that province for matters not subject to arbitration.

ARTICLE 12
SECURITY AND GUARANTEE

A. Franchisor Security. The Franchisor may register such security interests, liens or encumbrances over the Franchisee's property as it deems necessary to secure payment of amounts owing under this Agreement, including indebtedness and interest.

B. Personal Property Charge. The Franchisee grants to the Franchisor a security interest in its personal property used in the Franchised Business, including equipment, tools and accessories, and shall execute a general security agreement and permit the registration of a financing statement under the applicable personal property security legislation of the relevant province. Where existing security charges exist, the Franchisor's charge may rank as a subordinate charge.

C. Guarantee. Concurrently with this Agreement, the Guarantor shall execute the Franchisor's form of guarantee, pursuant to which the Guarantor guarantees the Franchisee's obligations under this Agreement. The guarantee shall be secured by:

________

D. Indemnity. The Franchisee and the Guarantor, jointly and severally, agree to indemnify and hold harmless the Franchisor and its officers, directors, employees and agents from and against all actions, causes of action, suits, debts, claims, losses, costs and damages arising from any breach of this Agreement by the Franchisee or its agents, employees or contractors. Nothing in this Article limits any liability of the Franchisor that may not be excluded at law, and in the event the Franchisor defaults under this Agreement, the Franchisee shall be indemnified and saved harmless from any resulting loss to the extent permitted by law.

ARTICLE 13
NOTICES

Any notice, demand or request under this Agreement shall be in writing and given by personal delivery, registered mail, electronic mail, or facsimile transmission to the respective addresses below:

To the FRANCHISOR:

________

________

________

________

To the FRANCHISEE:

________

________

________

________

To the GUARANTOR:

________

________

________

________

Notice sent by registered mail shall be deemed received three (3) business days after mailing; notice sent by electronic mail or facsimile shall be deemed received on the next business day following confirmed transmission.

Proof of proper addressing and sending shall be sufficient to establish that notice was given.

ARTICLE 14
GENERAL PROVISIONS

A. Independent Contractor. The Franchisee is an independent contractor and shall not be deemed an agent, employee, partner or servant of the Franchisor. Nothing in this Agreement creates a partnership, joint venture or fiduciary relationship between the Parties.

B. Language. The Parties confirm that they have requested that this Agreement and all related documents be drawn up in the English language.

C. Binding Effect. This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns.

D. Amendments. This Agreement may be amended only by a written document signed by all Parties.

E. Time of the Essence. Time shall be of the essence of this Agreement.

F. Waiver. No waiver of any provision of this Agreement shall be effective unless in writing, and no waiver shall constitute a waiver of any other provision or any subsequent breach.

G. Severability. If any provision of this Agreement is found to be invalid or unenforceable, such provision shall be severed and the remaining provisions shall continue in full force and effect.

H. Statutory Rights Preserved. Nothing in this Agreement shall be construed to waive, limit or derogate from any right, remedy or protection conferred upon the Franchisee by applicable franchise legislation, and any provision purporting to do so shall be void to that extent.

I. Entire Agreement. This Agreement, together with its schedules, constitutes the entire agreement between the Parties and supersedes all prior agreements, representations and understandings, whether written or oral, except for any representation, warranty or statutory right that may not be excluded at law.

J. Headings. Headings are for convenience only and shall not affect the interpretation of this Agreement.

K. Counterparts. This Agreement may be executed in counterparts and delivered electronically, each of which shall be deemed an original and together constitute one agreement.

ARTICLE 15
EXECUTION

The Franchisee acknowledges the risks of entering into this Agreement and that the success of the Franchised Business depends on the Franchisee's own abilities.

The Franchisee acknowledges that it has had an adequate opportunity to obtain independent legal advice and has either obtained such advice or freely elected not to do so, and that it is executing this Agreement of its own volition.

IN WITNESS WHEREOF the Parties have executed this Agreement as of the Effective Date.

Signed, Sealed and Delivered in the presence of:

________

___________________________
Per: ________

I have authority to bind the corporation.

________

___________________________
Per: ________

I have authority to bind the corporation.

________

___________________________
Per: ________

I have authority to bind the corporation.

___________________________
Witness name: ________

___________________________
Witness signature