The Franchise Reservation Agreement
Not every business is suited for franchising… But how can you tell if yours is ready to take the leap? Discover the essential criteria that can turn a concept into a successful network.
The Reservation Agreement serves as a preliminary contract in the process of joining a franchise network.
It occurs prior to the signing of the final franchise agreement and allows both the franchisor and the prospective franchisee to define their mutual commitments during a preparatory phase.
A Reservation Commitment for a Specific Area
Through this agreement, the franchisor – or network head – undertakes not to grant the designated geographic area to another candidate, nor to establish a company-owned outlet there, nor to engage in competing discussions, for a specified period of time.
In return, the prospective franchisee pays a zone reservation fee, often corresponding to a portion of the entry fee required under the franchise agreement.
A Specified Duration to Allow Project Preparation
The duration of the reservation agreement is freely determined by the parties and is generally a few months, giving the candidate time to:
- Find premises that meet the franchisor’s specifications,
- Obtain the necessary financing,
- And prepare for integration into the network.
Obligations of the Franchisee
Payment of the reservation fee
- This will serve as a deposit on the entry fee if the franchise agreement is ultimately signed.
If the agreement is not signed, this amount is generally retained by the franchisor, unless the contract provides for a partial or full refund.
Active search for suitable premises
- Appropriate and with the necessary financing, demonstrating their serious commitment to the project.
Obligations of the Franchisor
Even though this is not yet a franchise agreement, the reservation agreement is subject to protective requirements applicable in the franchise context, notably the prior provision of the Pre-Contractual Information Document (DIP), to which it is attached. This document, provided for by Article L.330-3 of the Commercial Code, must be communicated at least 20 days before signing the reservation agreement.
Furthermore, the franchisor may assist the prospective franchisee in their preparatory steps. The nature of this assistance – which may involve providing specifications defining the criteria for the premises search, or initial training – must be expressly defined in the reservation agreement.
It is important not to confuse the reservation agreement with the exclusivity clause found in the franchise agreement.
Article written by LINKEA AVOCATS, a law firm specializing in franchises and franchisors