Franchising an Existing Business: How to Check Consistency Across Agreements, Schedules and Recruitment Materials

When turning an existing business into a franchise, completing the franchise agreement is not the end of the preparation process. If fee schedules, schedules detailing support, operations manuals and recruitment materials are produced separately, they may describe the same terms differently. Building a trusted franchise network requires reviewing the documents prospective franchisees receive as a complete set and making clear exactly which terms they are agreeing to.

1. List the documents and define each one’s role

Start by gathering every document used from the initial discussions with prospective franchisees through to signing the agreement. Include not only the formal agreement but also presentation slides, tailored proposals, quotations, email templates and application forms. Check whether materials originally used for company-owned outlets have been repurposed for franchisees without appropriate changes.

For each document, record its name, the person responsible, version number, creation date, when it is used and whether it forms part of the contract. Its role might fall into one of the following categories:

• Recruitment materials: introduce the business and the process of becoming a franchisee.
• Disclosure documents and explanatory materials: provide information about the business and contractual terms to support a decision before signing.
• Franchise agreement and contractual schedules: define the parties’ rights and obligations and any individual terms.
• Operations manual: sets out procedures for putting agreed obligations into practice in day-to-day operations.

This classification does not mean that a document’s title alone determines its legal effect. Even a document labelled ‘for reference’ may raise issues if it contains specific promises. It is important to check both the actual wording and the explanations given alongside it.

In particular, identify which document sets out the definitive terms for the initial franchise fee, ongoing charges, franchisor support, opening requirements and contract term. The first goal is to ensure that staff are no longer referring to different sources for the same terms.

2. Clarify which documents form part of the contract, not just their order of precedence

The agreement should specify which schedules and rules form part of the contract. Wording such as ‘in accordance with the various materials prescribed by the franchisor’ leaves it unclear whether documents the prospective franchisee has not reviewed can impose obligations. At a minimum, make it possible to identify each document by name and its applicable version or date.

Establishing an order of precedence is not simply a matter of stating that ‘the agreement always takes priority’. If outlet-specific terms are set out in a schedule, the schedule must clearly identify which provisions in the main agreement it overrides. The following sequence makes the documents easier to check:

1. Set out the basic terms common to all franchisees in the main agreement.
2. Put individual terms in a schedule that identifies the relevant clauses.
3. Use the manual to describe the working procedures for implementing the basic terms.
4. Specify whom to contact and how to resolve any inconsistencies between documents.

For example, the main agreement might provide for on-site support visits by the franchisor, with a schedule specifying their frequency. However, if recruitment materials promise regular visits while the agreement makes them discretionary, the explanation itself should be corrected before relying on a precedence clause.

It is also important not to slip new charges or significant obligations into the manual. Treat the specification of operating procedures separately from the setting of contractual terms. A precedence clause should help readers understand what has been agreed, not serve as a reason to leave inconsistencies unresolved.

3. Compare each topic across documents in light of Japan’s disclosure rules

Japan has no single law comprehensively regulating all franchises. However, Article 11 of the Act on the Promotion of Small and Medium-sized Retail Business requires franchisors whose operations qualify as a ‘specified chain business’ under the Act to provide prospective franchisees with written disclosures and explanations before entering into a contract.

Whether a business falls within this category does not depend on its name alone. It must be assessed against the statutory requirements. These include having primarily small and medium-sized retailers as franchisees; continuously supplying goods, or arranging their supply, and providing management guidance under standardised contracts; and providing for the use of trade marks or similar rights and the collection of payments when franchisees join. Not every retail or food-service franchise is covered simply because it operates in those sectors.

The Japan Fair Trade Commission’s guidelines on franchise systems under the Antimonopoly Act also identify matters that should preferably be disclosed before contracting and explain how the Act applies to dealings between franchisors and franchisees. Being outside the scope of the Act on the Promotion of Small and Medium-sized Retail Business does not remove a business from the scope of the Antimonopoly Act. General rules under Japan’s Civil Code also apply to matters such as contract formation, interpretation and breach.

During the review, compare terms across documents rather than simply reading each document from beginning to end. A practical approach is to create a comparison table with rows for topics such as ‘fees’, ‘support’, ‘outlet opening’ and ‘arrangements on termination’, and columns for recruitment materials, disclosure documents, the agreement and schedules.

For fees, for example, compare not only the amounts but also whether tax is included, payment dates, the circumstances in which charges arise and refund conditions. For support, check who provides it, how often, what is included at no extra charge and any additional costs. Look for wording that could create different expectations even where no figures are involved, such as ‘advice available at any time’ versus ‘appointments available during business hours’.

Disclosure documents provide information for a decision before signing and serve a different purpose from the agreement. Do not leave misleading statements in disclosure or recruitment materials simply because the agreement contains the correct terms.

4. Finalise the complete document set and have an independent reader check it

Once consistency has been checked, finalise the complete set of documents to be used for signing. Bring together the main agreement, schedules containing individual terms, the fee schedule and any rules incorporated into the contract, and attach a list identifying the final versions. Avoid replacing individual documents just before signature.

If important terms change after they have been explained, highlight the changes, repeat any required document delivery and explanations, and give the prospective franchisee an opportunity to consider them. A signed acknowledgement of receipt is useful as a record, but it does not, by itself, remedy gaps or contradictions in the explanations provided.

Finally, ask someone who was not involved in preparing the materials to read them from a prospective franchisee’s perspective. Check whether the documents alone allow them to answer the following questions:

• Can they identify every fee they will be obliged to pay?
• Can they distinguish support the franchisor must provide from discretionary support?
• Can they see which common terms are changed by the individual terms?
• Can they identify every document forming part of the contract and its applicable version?

If the answers depend on additional verbal explanations from staff, the documents still need work. Have a lawyer familiar with Japanese franchise agreements review clauses or precedence arrangements that are open to differing interpretations. Retain the complete set used at signing together with the corresponding records of explanations provided.

Practical takeaway: Start by laying out every document that a single prospective franchisee will receive, then compare the fees and support commitments across them. Eliminating discrepancies before signing comes before deciding which document takes priority when they arise.