Understanding the legal aspects of Franchising | Franchising Fridays Podcast

Summary

The podcast transcript from Harper McLeod's first-ever franchising series, hosted by David Key, delves into the legal intricacies of franchising in the UK. Key highlights the lack of specific franchising laws and explains how franchising operates under general commercial law, contract law, corporate law, property law, and intellectual property law, along with the influence of European competition law and the British Franchise Association's code of ethics. The transcript outlines essential legal documents required for franchising, such as confidentiality agreements, deposit agreements, trademark licenses, and operations manuals. It also details the critical terms of a franchise agreement, including fees, territory, duration, performance targets, and renewal conditions. The rights and obligations of both franchisors and franchisees are discussed, along with the procedures for selling a franchise, dealing with death or incapacity of the franchisee, and the consequences of termination. The importance of seeking independent legal advice and the role of the British Franchise Association in governing franchising practices in the UK are also emphasized. The summary serves as a comprehensive guide for those looking to understand or enter the franchising sector.

Takeaways

• 📈 The UK franchising sector is growing, with 44,200 franchisee outlets, employing 621,000 people and reporting a 97% profitability rate.
• 🤝 Franchising in the UK is not regulated by a specific law but is governed by general commercial law, contract law, corporate law, property law, intellectual property law, and the European code of ethics for franchising.
• 📄 Key legal documents for franchising include a confidentiality agreement, deposit agreement, trademark license agreement, and an operations manual.
• 📑 The franchise agreement is the most critical document, often 40-50 pages long, outlining the franchisor's protections and obligations.
• 💰 Initial fees for franchises can range from £5,000 to £45,000, with ongoing management services fees typically between 8-15% of turnover.
• 📆 The standard term for a franchise agreement is often 5 years, renewable subject to performance and satisfaction of certain conditions.
• 🏢 Franchisees may be required to meet minimum performance targets and update a business plan annually with franchisor input.
• 🚫 Franchise agreements include strict compliance with the operations manual and brand standards, with consequences for non-compliance.
• 🔄 Franchisees have limited rights to sell their business, requiring franchisor consent and potentially paying a commission for the introduction of a buyer.
• ⚖️ The British Franchise Association plays a significant role in providing governance and ethical standards for the franchising sector in the UK.
• 👥 The agreement also covers scenarios such as the death or incapacity of the principal franchisee, with provisions for succession or sale of the business.

Q & A

What is the current state of the franchise industry in the UK according to the British Franchise Association survey?

According to the British Franchise Association survey, there are 44,200 franchisee outlets in the UK, employing 621,000 people. 97% of franchisees report profitability, and franchisee satisfaction with their franchisor is at 91%, which has never been higher.

How is franchising regulated in the UK?

In the UK, franchising is not regulated by a specific franchising law. It is governed by general commercial law, contract law, corporate law, property law, intellectual property law, specific acts of parliament like the Trading Schemes Act 1996, European and UK competition law, court judgments, and the European Code of Ethics for Franchising.

What is the purpose of a confidentiality agreement in franchising?

A confidentiality agreement, sometimes called a non-disclosure agreement, is used to protect the franchisor's trade secrets from being disclosed. It is important that one of these agreements is signed before the franchisor shares confidential information with the franchisee.

What is a deposit agreement and why is it used in franchising?

A deposit agreement is used when a franchisor agrees to reserve a territory for a franchisee, often while the franchisee is finding appropriate premises or securing bank funding. The agreement includes a payment from the franchisee to the franchisor, which is typically around £2,000 and is held until the franchise agreement is signed or is refundable if the franchisee decides not to proceed.

Why is a trademark license agreement necessary for a business looking to franchise?

A trademark license agreement is necessary to ensure that the franchisor has the right to use the business's properly registered trademark for franchising purposes. It is prepared between the owner of the business and the franchisor company that is set up for franchising.

What is the importance of an operations manual in a franchise system?

The operations manual is critical as it serves as the franchisor's guide on how to run the business. It is a carefully prepared document that outlines all the important aspects involved in running the franchise system from opening to closing and is usually compiled with the help of a franchise consultant.

What are the key terms typically found in a franchise agreement?

Key terms in a franchise agreement include the rights granted to the franchisee, such as the territory and exclusivity, various fees like the initial fee and management services fee, the term of the agreement, performance targets, and the franchisor's obligations.

What is the typical range for the management services fee in a franchise agreement?

The management services fee is often a percentage of turnover, excluding VAT, and typically ranges between 8% and 15%. However, this percentage can vary and sometimes be significantly higher.

What are the conditions for a franchisee to renew their franchise agreement?

To renew their franchise agreement, a franchisee must have performed to the satisfaction of the franchisor during the initial term and achieved any targets set. They must also serve a notice between 30 and 60 days before the end of the term, and the franchisor may require upgrades to vehicles, equipment, or premises as conditions for renewal.

How does a franchise agreement address the situation of a franchisee wanting to sell their business?

A franchisee must obtain the franchisor's prior consent before selling their business. The franchisor has the right of first refusal, meaning they can buy the business back at the same price and terms as offered by a third party within a specified period, usually around 30 days.

What are the consequences of termination in a franchise agreement for the franchisee?

Upon termination, the franchisee is obliged to cease trading, stop using the branding and IP, return the operations manual, and abide by a restrictive covenant, which typically lasts for 12 months and restricts the franchisee from competing in the territory or soliciting employees, suppliers, and customers.

Outlines

00:00

📚 Introduction to Franchising Laws and Documents

In this introductory paragraph, Harper McLeod's podcast on franchising discusses the legal aspects of franchising in the UK. It highlights that franchising is not specifically regulated, but is governed by various laws including commercial law, contract law, corporate law, property law, and intellectual property law. The podcast also mentions the Trading Schemes Act 1996, European and UK competition law, court judgments, and the European Code of Ethics for Franchising. Key legal documents required for franchising are outlined, such as confidentiality agreements, deposit agreements, trademark license agreements, and the operations manual. The importance of the franchise agreement is emphasized, noting its length and one-sided nature in favor of the franchisor.

05:01

📝 Key Terms and Fees in Franchise Agreements

This paragraph delves into the specific terms and fees associated with franchise agreements. It starts by explaining the franchise rights granted, including territory and exclusivity. It then details the various fees such as the initial franchise fee, which can range significantly depending on the franchise type, and the ongoing management services fee, typically a percentage of turnover. Also discussed is the national marketing levy, the duration of the franchise term with options for renewal, and performance targets for the franchisee. The territory allocation and the franchisor's right to impose upgrades and other conditions are also covered.

10:03

🏢 Obligations and Expectations for Franchisors and Franchisees

The third paragraph outlines the obligations of both franchisors and franchisees within a franchise agreement. For the franchisor, it includes initial obligations like providing training, a startup package, an operations manual, and ongoing support. The franchisee's obligations are more extensive, covering areas such as product and service supply, recruitment and training of staff, premises and vehicle requirements, intellectual property and branding, internet and social media policies, accounting and reporting, and compliance with the operations manual. The franchisor's right to terminate the agreement if the franchisee fails to meet targets or other obligations is also discussed.

15:05

🔄 Rights and Restrictions on Selling a Franchise

This section discusses the process and restrictions related to the sale or transfer of a franchise. It explains the franchisor's right of first refusal, allowing them to buy back the business under the same terms offered by a third party. The paragraph also covers the conditions that must be met for a franchisee to sell their business, including obtaining the franchisor's consent and ensuring the incoming franchisee meets the required criteria. It touches on the costs associated with the sale, the franchisor's potential commission for introducing a buyer, and provisions for situations such as the death or incapacity of the principal of the franchisee's company.

20:05

⚖️ Consequences of Termination and Legal Considerations

The focus of this paragraph is on the consequences of terminating a franchise agreement and the legal protections in place. It details the franchisor's ability to terminate for various reasons, including non-payment, breach of agreement, and insolvency, and the potential for the franchisor to recover losses, including anticipated earnings. The paragraph also covers the franchisee's limited ability to terminate and the standard post-termination restrictions, such as non-competition and non-solicitation clauses. Additionally, it highlights the importance of seeking independent legal advice and the role of the British Franchise Association in providing guidance and dispute resolution schemes.

25:05

🏛️ Role of the British Franchise Association and Final Thoughts

The final paragraph emphasizes the role of the British Franchise Association as the governing body for franchising in the UK, adopting the European Code of Ethics and providing guidance that courts have found useful. It stresses the importance of using accredited advisors who specialize in franchising and encourages seeking professional advice whether one is looking to expand through franchising or considering becoming a franchisee. The podcast concludes with an invitation for more information and questions, directing listeners to Harper McLeod's website for franchising services.

Keywords

💡Franchising

Franchising is a business model where a company (the franchisor) licenses its business system, brand, and trademarks to another entity (the franchisee) for a fee. In the video, franchising is the central theme, as it discusses the legal aspects and various documents required for a successful franchising relationship.

💡Franchisor

A franchisor is the company that grants the franchise and provides the business model, systems, and trademarks to the franchisee. The script mentions that the franchisor sets up a separate company to protect its intellectual property and trademark, and it outlines the franchisor's obligations and rights within the franchise agreement.

💡Franchisee

A franchisee is an individual or entity that buys the right to use the franchisor's business model and brand. The script discusses the franchisee's satisfaction levels, profitability, and the obligations they assume under the franchise agreement, such as paying fees and adhering to operational standards.

💡Legal Documents

Legal documents are formal written records that outline the terms and conditions of the franchising relationship. The script identifies several key legal documents such as the confidentiality agreement, deposit agreement, trademark license agreement, operations manual, and franchise agreement, which are crucial for protecting both the franchisor and franchisee's interests.

💡Confidentiality Agreement

A confidentiality agreement is a legal contract that protects the franchisor's trade secrets and confidential information. The script explains that it is important for a franchisee to sign this agreement before receiving any confidential information from the franchisor.

💡Trademark License Agreement

A trademark license agreement allows the franchisor to use the business's brand and intellectual property for franchising purposes. The script mentions that this agreement is prepared between the owner of the business and the franchisor company, ensuring the proper use of the trademark within the franchise system.

💡Operations Manual

The operations manual is a detailed guide provided by the franchisor to the franchisee, outlining how to run the business on a day-to-day basis. The script describes it as the 'franchisor's Bible' and emphasizes its importance in setting out the critical aspects of running the franchise system.

💡Franchise Agreement

The franchise agreement is the primary legal document that governs the relationship between the franchisor and franchisee. The script explains that it is often one-sided in favor of the franchisor and details the terms of the franchise, including fees, territory, obligations, and termination clauses.

💡Management Services Fee

The management services fee is a recurring fee paid by the franchisee to the franchisor, typically a percentage of the franchisee's turnover. The script states that this fee is used to cover the franchisor's management services and can range between 8 to 15 percent of turnover.

💡Territory

Territory refers to the geographical area designated for the franchisee's operation. The script discusses how the territory is defined in the franchise agreement, often with specific points or a map, and the importance of documenting these boundaries to avoid disputes.

💡Renewal

Renewal refers to the extension of the franchise agreement beyond its initial term. The script explains that the franchisee has the right to renew the agreement, subject to meeting performance targets and the franchisor's satisfaction, and that the renewal process may involve serving a notice and potentially upgrading premises or equipment.

💡Termination

Termination refers to the ending of the franchise agreement before its natural expiration. The script outlines that the franchisor typically has the right to terminate the agreement for various reasons, such as the franchisee's failure to meet targets or breach of contract, and that the consequences of termination include the franchisee ceasing to use the brand and paying damages.

💡British Franchise Association

The British Franchise Association (BFA) is the trade body that governs franchising in the UK and provides guidance and support to franchisors and franchisees. The script highlights the BFA's role in adopting the European code of ethics and its importance in providing expert advice and dispute resolution services.

Highlights

Introduction to Harper McLeod's first-ever franchising podcast with David Key, partner and head of retail and franchising.

UK has 44,200 franchisee outlets, employs 621,000 people, with 97% profitability and 91% franchisee satisfaction.

Franchising in the UK is not regulated but governed by general commercial law, contract law, corporate law, property, and intellectual property law.

The importance of a confidentiality agreement to protect the franchisor's trade secrets.

Explanation of a deposit agreement and its role in reserving a territory for the franchisee.

The necessity of a properly registered trademark and the setup of a separate company to act as a franchisor.

The critical role of the operations manual as the franchisor's guide to running the business.

Details on the franchise agreement, often 40-50 pages long, favoring the franchisor.

Key terms in a franchise agreement, including the grant of rights, fees, and territory.

Initial fees can range from £5,000 to £45,000, depending on the franchise type.

Management services fee is typically 8-15% of turnover, with a national marketing levy of 1-3%.

Franchise terms usually last 5 years, renewable subject to the franchisee's performance.

Territory mapping and the franchisor's right to impose minimum performance targets.

Consequences for the franchisee failing to meet performance targets, including territory reduction or termination.

The franchisor's initial obligations, including training, startup package, operations manual, and marketing launch.

Ongoing obligations of the franchisor, such as training, updating the operations manual, and providing system support.

Extensive obligations of the franchisee, covering product and service supply, employee management, and compliance with branding.

Regulations on the franchisee's right to sell the business, including the franchisor's right of first refusal.

Provisions for the death or incapacity of the franchisee, including the franchisor's options and criteria for a replacement.

Termination clauses favoring the franchisor, with conditions for the franchisee to remedy breaches.

Consequences of termination, including loss recovery and the franchisee's obligations to cease trading and comply with restrictive covenants.

Boilerplate clauses, including principal guarantees, indemnity, acknowledgments, and the entire agreement clause.

The role of the British Franchise Association as the trade body and source of governance for franchising in the UK.

Recommendation to seek professional advice when considering franchising, from British Franchise Association accredited advisors.

Conclusion of the podcast and invitation to part two of the franchising podcast series.

Transcripts

welcome to Harper McLeod's first-ever

franchising fraid these podcast CDs to

start to solve david key partner and

head of retail and franchising at harper

McCloud will take us through

understanding the legal aspects of

franchising we hope you enjoy it did you

know that according to recent British

Franchise Association now West survey

there are forty four thousand two

hundred franchisee outlets in the UK six

hundred twenty one thousand people are

employed in franchising and 97% of

franchisees report profitability

franchisee satisfaction with her

franchisor is currently sitting at 91%

and has never been higher so what is

franchising laws are such a thing as

franchising law unlike many other

countries throughout the world

franchising is not regulated in the UK

instead it's governed by a number of

different aspects such as general

commercial law the laws of contract some

corporate law property and intellectual

property some specific acts of

parliament for example the trading

schemes Act 1996 it's also made up

partly of European and UK competition

law court judgments and then there's the

European code of ethics for franchising

which has been adopted by the British

Franchise Association all in all it

boils down to best practice so if you're

looking to grow your business through

franchising what types of legal

documents or you require the first would

be a confidentiality or sometimes as

code and underscores your agreement this

is a relatively short agreement and it

protects the franchisor from anyone

disclosing in trade secrets it's pretty

important that there is it ensure that

one of these is signed before the

franchisor begins to pass on

confidential information the second

document is called a deposit agreement

normally a franchisor

would agree to reserve a territory for

the franchisee perhaps was the

franchisee equals a way to find

appropriate premises or secure bank

funding and that period of time could be

three months or six months but it he

usually recorded within a deposit

agreement where the franchisee agrees to

make a payment to the franchisor but we

have deposit and typically two thousand

pounds is a normal Selma and then that

sum will be held by the franchisor until

either the franchisee cause ahead in

which case is deducted from the initial

franchise fee payable or if the

franchisee to say to not to go ahead

then usually the fee is refundable by

the franchisor less the franchisor is

proper and reasonable costs the next

document that's important to consider is

a trademark license agreement before you

franchise your business you need to

ensure that you have a properly

registered trademark and once you have

that it's quite common for the

franchisor to set up a separate company

to act as franchisor

but protect its intellectual property

including its trademark in the core

business therefore what a lawyer

normally prepares is a trademark license

agreement between the owner of the

business and the franchisor company

that's been set up for franchising and

that's called a trademark license

agreement allowing the franchisor to use

the brand and the IP for the purposes of

franchising another document that's

critical is the operations manual this

really is the franchisors Bible on how

to run the business

from the moment the franchisee opens up

in the morning until the franchisee

causes up at night

it's a carefully prepared document the

most franchisors will compile with the

help of a franchise consultant setting

out all the really important aspects

involved in running this system but by

far the most important document is the

franchise agreement itself now this

could quit often run somewhere between

40 and 50 pages long

and it's usually very one-sided in the

favor of the franchisor

after all the franchisor has spent a lot

of time effort and money in developing

his business and the franchise agreement

is where the front resource protections

are all set out and documented so what I

want to do today is to talk you through

some of the key terms that you'll find

in a franchise agreement perhaps explain

a little bit buying a why these terms

are used and why they're drafted in such

a one-sided way so let's start at the

beginning of the document we will have

set out what's called the key terms of

the relationship first of all you'll

have what are the rates granted so

what's a franchisee allowed to do

does it have an exclusive territory and

withers are allowed to operate secondly

could be the various fees set out

there's an initial fee or some people I

can't convince from sometimes as low as

five thousand pounds all the way up to

forty five thousand it depends on the

type of franchise but that's called the

initial fee and then exchanged for that

the franchisee receives what's called an

initial franchise package and that going

quit training on the system it may

include franchise stationery says have

uniforms possibly some other equipment

then of the management services fee and

this is quite often recorded as a

percentage of turnover turnover

excluding v80 and that percentage is

people every month by the franchisee to

the franchisor

for management services it can be a

fixed fee but this is not

common in what we know was a business

format franchise typically a management

services fee will be somewhere between 8

and 15 percent of turnover but that's

not always set in stone and you do see

these percentages being significantly

higher from time to time the phantosaur

is also entitled to learn a national

marketing levy or national marketing

contribution now this is usually a small

percentage of turnover typically between

1 and 3 percent cable each month to the

front a zone who is then entitled to

market the franchise system nationally

in whatever way the franchisor

chooses to do another key term of the

relationship is how long will it last

what is the theorem and again it's

common to see a 5 year term subject to

renewal but there are terms that are

longer and sometimes you'll see seven or

10-year franchise terms the franchisee

has a rate of Inyo at the end of the

initial term and for example let's take

it as 5-year late

however the franchisee has to have

performed to the satisfaction of the

franchisor during that five years and

there may be targets at the franchisee

has to achieve to be allotted the

opportunity to renew since there will

also be conditions attached to the new

on the franchisee he will have to serve

a notice quite often between 30 and 60

days before the end of the five year

period requesting another franchise term

the franchisor has the ability to

request that the franchisee upgrade as

vehicles or equipment

perhaps refurbished premises and other

conditions that are things are

appropriate before

new will be granted but the franchisor

can also say no if the franchisee is a

material breach or has been a material

which at any point through the five-year

term orders in any type of bridge when

it comes to the new the franchisor can

turn around and say no you're not

getting a further term also recorded at

the outset is the territory and usually

this is done by way of push points

sometimes a territory map is also

annexed as a schedule to the agreement

so it's very important to ensure that

all of the relevant postcards are

properly documented in the franchise

agreement and targets the franchisor is

entitled to impose a reasonable minimum

performance targets on a franchisee and

ensure that the funds as he achieves

those targets usually the front verse

agreement will contain a clause which

sets out the necessity of the franchisee

to prepare a business plan for that the

air it said inhabit updated once a year

with input from the franchisor as well

as a franchisor approval and the

franchisor can actually impose targets

on the franchisee within the business

plan the agreement will usually see that

in the event that the franchisee does

not achieve those targets then the

franchise or franchisee will sit down

discuss perhaps why they've not been

achieved set new targets it might be

that the franchisor gives the franchisee

further training or additional support

but ultimately after a third for the

period of time which can often be six

months or so if the franchisee has still

failed to achieve the targets and there

are a number of options available to the

franchisor this may be to reduce the

size of the territory it may be to

remove exclusivity from the territory

and ultimately the franchisor has got

the right to terminate the agreement so

once now looked at the franchisors

obligations

settled in this franchise agreement

towards the franchisee it's a relatively

short section where the franchisor is

obliged to provide certain things

initially these are called the initial

obligations that will include initial

training the provision of a startup

package and sometimes equipment will be

included the supply of an operations

manual on loan and clearly to be treated

a strictly confidential and perhaps some

assistance with the franchisees initial

setup even including a marketing launch

but not much more and on an ongoing

basis the Fronteras ongoing obligations

and again relatively few they will

include ongoing training and development

update to the operations manual and

procedures and implementing the system

perhaps the supply of products and

services to the franchisee whether

directly from the franchisee over or

through its nominated suppliers and

usually it will be a hill plane for

support and that's available to a

franchisee yet this will be documented

as an ongoing obligation once the

franchise system is large enough the

franchisor may also be obliged to

organize an annual conference and

perhaps regional meetings at its

discretion however the longest section

of the agreement is what the franchisee

is obliged to do in relation to its

obligations for the franchise home and

this will be split into various

different sections which can be very

detailed so that usually will be a

section on the supply of products and

services to customers a section on the

importance of recruitment training and

supervision of employees if premises are

involved and OB are detailed section on

locating suitable premises making sure

that the franchisor approves of these

premises and amira court whether or not

the franchisee is to take the lease of

the premises itself or sometimes

please from the franchisor there will

also be a section all vehicles because

the franchisor may require a franchisee

to buy or lease a suitable vehicle and

have appropriate livery on the vehicle

usually will be a section all about the

intellectual property the branding of

the franchise system and the importance

of maintaining that branding and

notifying the franchisor should there be

any challenges to the trademark there

will be a section about the internet and

commonly the franchisor has its own web

page with a separate page for each

franchisee in the system so it's not

unusual for a franchisee not to be

allowed to have his own website but to

be complied to use the page from the

front resource bonding page the mayor

will be a section on social media and

the franchisor may have a social media

policy and it will be all about

complying with the brand gay blades the

should be a section in the agreement on

accounting and reporting requirements of

the franchisee the franchise was going

to want regular reporting ami reserve

the right to access the franchisees

accounting system and have all account

the relevant figures and it will

certainly want accounts to be prepared

and finalized with our said time period

and usually to receive copies of the

accounts and quite often evolve e80

returns and they'll also be a section on

compliance with the operations manual

which of course will be fairly strictly

enforced so what happens when a

franchisee wants to sell its business

and there's a separate section in the

agreement which regulates the

franchisees right to sell the franchisor

can sell or transfer its obligations on

this agreement

whenever a once to whomever a once

provided the

new franchisor complies with the terms

of each franchise agreement but a

franchisees rate the silver is very

different firstly it must obtain the

front eyesores prior consent before it

sells earned the franchisor can buy the

business back this is called the rate of

first refusal or sometimes preemption

and what this often says is that the

franchisor has a period of time usually

around 30 days to decide whether or not

to buy the business bank and the same

price on a market rate as a franchisee

has been offered and on the same terms

of conditions if the front has or does

not exercise its rate to buy back then

the franchisee is entitled 2% to sell

the business but subject to the incoming

franchisee meeting all the franchise

required criteria and that will include

completing training it may also state

that either the franchisee or the

incoming franchisee have to pay for the

costs of the franchisor

legal and administrative costs the cost

of training and if the franchisor is

introduced the purchaser and quite often

there's a separate Commission on the

introduction of a purchaser that can be

10% of the sale price the agreement also

contains sections about death and

incapacity of the franchisee sometimes

and quite quite frequently franchisee

set up their own limited company to run

the franchise business but there will be

a principle the main person or people

who will be responsible for operating

our business and these will usually be

the directors sometimes also the

shareholders of the franchisees company

and if the principal

dies or is incapacitated during the

agreement then there are causes that

regularly was to happen the front is or

usually provides

can appoint a manager during the interim

period to run the business with the

franchisee or as next of kin

meeting the costs of that manager and

the franchise was administrative costs

in addition but the retain period set

out in each franchise agreement whereby

in the event of death the franchisee

Ohama

next-of-kin known in Scotland as

executives or trustees and they can

appoint a family member or a lover party

who's acceptable the to the franchisor

to step in but of course that person has

to meet the franchisors criteria in the

same way that we would do if the

business was being sold to in the event

that within the set time period usually

six months their husband in somebody

nominated or somebody was suitable then

the franchisor can require the

franchisee to sell his business within a

further period of time again often six

months feeling which the franchisor has

the option to buy the business back

itself or simply to terminate the

agreement in the event of incapacity a

time period exists whereby let's say for

14 consecutive days a franchisee is

unable to run the business or for a

total of 60 days in any period of 12

months then the franchisor

beyond being able to engage a manager

from the business during this period can

then say to the franchisee you know

required to sell the business and a time

period of usually three to six months is

again imposed for the franchisee to do

so the termination clauses in a

franchise agreement are very one-sided

normally only allowing the franchisor

the ability to terminate though there

may be certain common grounds for

termination such as failing to pay songs

to material or repeated breach of the

franchise agreement by the franchisee

providing false or misleading

information to the franchisor

the

the brand feeling tucked in franchisors

consents perhaps buying from non

approved suppliers bankruptcy or

insolvency and even suspending or

threatening to suspend trading the

business these will usually allow the

frontiers or the rate to terminate

immediately and to pursue the franchisee

forest losses so with for example and

this happens within two years of the

franchisee Terrell then the franchisor

has got three years of unexpired term in

which its entitled to receive a

management services fee and therefore it

can usually seek to recover these losses

from a franchisee there may also be a

number of what we call minor pitches

we are the frontiers orders obliged to

send a franchisee a notice to see remedy

these or else I will end

terminate but a franchisee can't

terminate a franchise agreement unless

it's prepared to do so under common law

and go to court to prove the breach and

then prove the loss it's a far more

difficult situation than a franchisee

encounters enough the franchisor and

then the agreement will cover what we

call the consequences of termination and

apart from the franchisor rate to

recover loss including this loss of

anticipated earnings the front as he

will be obliged to cease to trade to

cease to use all of the branding on the

IP to return the manual and to abide by

a restrictive covenant now these are

very standard in franchise agreements

and they are quite enforceable twelve

months is known as the normal period

where franchisor

can restrict the franchisee from not

competing in the territory perhaps in

the territory of another franchisee

and similar restrictions from non

solicitation of employees not

approaching suppliers

and the same with customers each

franchise agreement will be slightly

different but usually these are well

drafted clauses that are enforceable by

a court they're different from

employment covenants we are usually

somebody is entitled to earn a

livelihood and you can't deprive them of

doing so in franchising a franchisee has

purchased the business which is able to

sell and therefore courts and will

usually enforce a 12-month respective

covenant towards the end of the

agreement we have our significant number

of in general causes or as we call them

in the legal trade boilerplate clauses

but nonetheless these are extremely

important there is usually a section I'm

aware the principle guarantees and the

covenants the performance by the

franchisee

company and it's a very enforceable

section it may even be a separate form

of guarantee than the principle is meant

to enter into and here it said there

will be an indemnity clause where the

franchisee agrees to make good to

indemnify the franchisor against any

loss that her sustains and there will be

several causes called acknowledgments

this will be acknowledgments for example

that the franchisee has no right to the

system that no guarantee or warranty has

been provided by the franchisor that the

franchisee has been advised to seek

independent advice and has done so then

it's using its own personal judgment and

that it's a business which contains

risks and it's important that the

franchisee fully reviews and understands

each of these acknowledgments before

they sign up to the agreement franchise

rules are always encouraged to ensure

the franchisee seek independent legal

advice ideally from a franchising lawyer

there'll also be a clause called the

entire agreement cause which basically

says the franchise agreement and the

manual contained the entire agreement

demon of the

this and that no other documents can be

relied upon so that if the franchisor

has given the franchisee a prospectus or

a set of projections or any other

correspondence the franchisee cannot

rely upon them unless they are annexed

to state at the front part of the

agreement the should be an alternative

dispute resolution clause in a franchise

agreement perhaps saying that in the

event of a dispute the parties will have

an informal meeting try and resolve the

differences but if note that they will

then proceed to try and resolve in

spirit through either mediation or

arbitration the British Franchise

Association have appropriate schemes

that members can use in the event of

dispute resolution being necessary and

will be a clause about the governing law

and it won't usually say if the

agreement is drawn up in England that

it's English law and the law counseling

on them Wales or to apply if it's drawn

up in Scotland then hopefully it will be

Scottish law under Scottish courts know

the differences between Scottish and

English law or some terminology

differences but largely their property

related and it will be important for a

franchisee to go to a solicitor who

understands property law and make sure

that the appropriate differences are

contained in the agreement should the

property be in Scotland finally it's

important just to touch on the role of a

British Franchise Association in the UK

they are the trade body for franchising

in this country they are the only source

of governance for franchising and as I

previously mentioned they adopt the

European code of ethics courts have

deemed their guidance to be very useful

in determining cases and it would always

be advisable to use British Franchise

Association accredited advisors they

understand

franchising making guide franchisors and

franchisees with genuine expert

in summary these on detailed and

one-sided documents but for a very good

reason and it is important to seek

proper professional advice whether or

not you want to expand your business

through franchising or if you're in a

franchisee or looking to take a

franchisee of an already established

system

so that concludes the first of our

four-part franchising Freddy's podcast

series for more information on how our

team can help you with franchising you

can find our services on Harper MacLeod

vocoder at UK forward slash franchising

and if you have any questions please do

get in touch

thanks for tuning in we look forward to

you joining us for part two of our

franchising Friday's podcast soon