In the UK, there is no franchise law contained in any franchise-specific regulations or law. Franchise agreements are therefore the central legal foundation of any franchise and it is to a franchise agreement that you will generally turn in relation to any problems.
Franchises are, however, also governed by the same laws that govern all other types of businesses. In particular, contract law will be the source of enforcing your franchise agreement.
What is franchising?
Franchising essentially involves a person (the ‘franchisor’) granting another person (the ‘franchisee’), the right to trade under the franchisor’s name and to make use of the entire package offered by the franchisor.
So, for example:
- If you bought a fast-food franchise, you would have the right to make and sell all the food that the franchised business sells and to market it under their established brand
- The franchisor will provide you with all the training and ‘know how’ that will be necessary to run the business. They will also provide on-going support on a basis determined by both parties in the franchising agreement
- In return, the franchisee will pay the franchisor an initial fee to acquire the franchise. In addition to this fee, the franchisor will also receive a ‘management service fee’; this is normally based on a percentage of the annual turnover
This whole agreement between both parties will be recorded in a license agreement or franchising agreement. Before entering into any agreement, legal advice should be sought in order to help negotiate, draft and check any agreement - license and franchise agreements can often contain a range of complex clauses.
The pros and cons of franchising
Whilst franchising may seem to be an easier option for owning and operating a business, franchising is in many ways more complex than an ordinary business set-up. This is because the franchise relationship, and your individual franchise business, is governed by the central franchise agreement.
If you are considering entering into a franchising arrangement, or if you are currently in a franchise arrangement and are encountering problems, you should seek franchise advice from a specialist franchising solicitor.
When considering whether to invest in a franchise business it is important to understand the advantages and disadvantages that will apply. It is particularly important you have the franchise agreement carefully looked over by a specialist franchising solicitor before:
- Paying any deposit
- Signing the agreement
The obligations under a franchise agreement can be onerous and generally lean in favour of the franchisor. There can be significant restrictions on your ability to operate the business as freely as you wish, and significant responsibilities. There may also be substantial financial consequences flowing from the terms and conditions of a franchise agreement.
What to do if there is a dispute
If you do proceed with the franchise investment, and if problems arise, there is no specific law applicable to franchising. The laws that apply generally to businesses will apply, particularly contract law. However, there are no other protective safeguards for franchisees. Everything comes down to the franchise agreement.
For this reason it is important to seek specialist franchise advice from a specialist franchise solicitor. Problems may arise if one party believes that the other is not fulfilling their obligations under the contract, or if they believe that the other is acting in a way that is injurious to the franchise. You may also encounter difficulties in the event that you wish to exit the franchise or sell it.
Are you thinking about purchasing a franchise and want to know more? See our page on buying a franchise.
Do you need help with a franchise agreement, or support throughout the process of buying a franchise? Contact Law can put you in touch with a specialist franchising solicitor who can ensure the process runs smoothly and efficiently. Please call us on 0800 1777 162 or complete the web-form above and we will call you back.
- Last Updated on 03/09/2015