Franchise Agreement Legal Advice

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Make sure you fully understand the legal risks of a franchise before you sign up. Our solicitors are experts.

All franchises have a number of things in common. The party taking up the franchise (franchisee) is granted by the party who owns the franchise (franchisor) a number of rights in exchange for payment. This payment normally includes some form of initial premium then a number of periodic payments.

How these payments are calculated will depend on the particular franchisor but they are often based on a minimum payment and then calculated in reference to turnover.

In exchange for this payment the franchisor (depending on the particular deal that you have negotiated) should grant the franchisee the right to use the name associated with the franchise and also the franchisor often provides training and assistance to ensure that the franchisee performs to the same standard as all other franchisees.

Please get in touch with us for a free initial discussion whether you are considering taking a franchise or setting up a franchise. We can help.

Franchise Agreement

Before entering into a franchise you should ensure that you have a franchise agreement in place and that you have taken legal advice on the terms contained within this.

Even though many franchise contracts are submitted to franchisees on a “take it or leave it” basis, using the rationale that all agreements must be the same to ensure consistency, such agreements are often very detailed and contain points which may appear to be of little consequence but which could create major issues if you are unaware of the implications.

Even of most areas are non-negotiable, it is inadvisable to enter into these agreements without knowing all the implications risks, and costs.

The franchise agreement will often also include details on how much the franchisee should spend on marketing, products, advertising etc or will provide that the franchisor will undertake all of this but at the franchisees expense. The contract may well restrict the franchisee also in many important respects which will need to be considered also.

Enquiries are also recommended of other franchisees to find out their experiences of operating the franchise and any pitfalls. Many franchisors will try and restrict who can be approached and to slant this process, which is another good reason for having the right advice.

Franchisees should also carefully consider the exit provisions and ability to sell on the franchise, together with costs such as property costs and the terms of any lease of premises associated with buying the franchise.

How to set up a franchise

If you are running your own business and you believe that it would be successful offered to a wider customer base then you could consider franchising. In order to do this you will need to produce a detailed business plan, which will generally follow a similar format to a business plan for a non franchised business. If you do decide to franchise your business it is important to have an operation manual in place and the right franchise legal contracts and documents in place, which are detailed and key for success and retaining control.

With franchising models involving physical shop premises,property aspects of the franchise also need to be carefully considered. Franchisees, if they are new to business and need trading premises may not be in a position to secure a lease, as part of the franchise agreement you as franchisor may need to remain as lessee and agree to enter into a headlease with the landlord or owner of the premises and in turn to grant a sub-lease.

Legal Services and solicitor advice for franchise

Below are some of the ways our franchise lawyers can help:-

  • General legal advice on franchising
  • Due diligence on the franchise offered
  • Property law aspects, if any associated with the franchise such as a premises lease
  • Advice on the franchise agreement offered
  • Termination and exit penalty charges (if any)
  • risks associated with lack of control and hidden or unknown charges in the Franchise Agreement
  • Any legal risks of personal liability?
  • What assurances if any are in the Franchise Agreement about the underlying strength of the franchise model, such as express financial and other commitments and resources the franchisor will commit to.
  • Training and support provided in teh Franchise Agreement
  • Exclusivity
  • Franchise renewal at end of term.

Is the franchise regulated?

Despite the fact that franchising is becoming a popular business model in the UK there is still not much in the way of regulation in place. There is a British Franchise Association and if you belong to this then you are obligated to comply with the European Code of Ethics for Franchising but it is essentially self regulated. There are however certain regulations relating to trading which both parties will need to comply with and there may also be specific regulations for the type of business you are entering into which you need to know about and comply with.

Selling on (assigning) a franchise

Getting out of a franchise may involve complications where the franchise is not terminated but instead the franchisee wishes to sell his, her or it’s interest. The franchise agreement is likely to have strict criteria which must be fulfilled, including the any assignee (buyer) must be satisfactory, which will almost inevitably mean delay and additional legal costs.

Franchise Disputes 

From the franchisees point of view, it can be daunting if the arrangement is not working out. Franchisees are all too aware that they will be up against a much larger organisation with greater resources. Litigation should be avoided wherever possible, but this is not to say that it is impossible to negotiate terms to exit a franchise. The franchisee may be able to argue that the franchisor is in breach of contract or there may have been a misrepresentation.

Other aspects which may arise on terminating a franchise agreement include exit payments, possibly for stock, other penalties under the franchise agreement, possible employment law issues and commercial property problems where the franchise is run from shop premises, where there is a lease and the franchisee may be the leaseholder and need to try and assign the lease or negotiate a surrender if possible.

Our lawyers can advise and assist on all the above franchise issues. Please get in touch.

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