Franchising - the devil in the detail

Author(s)
Tracey Dickens

A popular means for certain businesses to expand their operation, franchises often tend to outperform their in house counterparts since the business operators are the owners and have a vested interest in success. Franchising uptake increases in a recession as those with redundancy packages take the opportunity to become their own boss, some opting for the reduced risks associated with operating a franchise.

As there is no specific legislation for franchising in the UK, the franchisor is at liberty to strike whatever bargain he wishes with the franchisee, although such agreements are subject to common law and the plethora of existing legislation governing commercial relationships. Franchise agreements should achieve three key objectives:

1. Given the absence of specific legislation, to contractually bind the franchisor and the franchisee and accurately reflect the terms agreed upon.

2. To protect the franchisor’s intellectual property for the benefit of both the franchisor and the franchisee.

3. To clearly set out the rules by which the arrangement is to work and ensure uniformity for all franchisees.

As a consequence, franchise agreements are relatively complex documents. Prospective franchisees should ensure that they are fully aware of the commercial and legal implications of such an agreement and fully research both franchisor and franchise offering before committing to it, ensuring that there is real evidence of the system to be operated and proper support available during start up and ongoing. They should also try to gauge whether the franchise fee is appropriate for the brand, system, equipment, support etc that they are purchasing and whether these costs are recoverable and profit is likely.

Conversely, franchisors must ensure that an agreement provides them with the protection they need. They will want to ensure that they understand the terms so that they can comply with their obligations and enforce the agreement in the appropriate manner if necessary.

A lawyer who specialises in advising franchisors and franchisees will understand both sides of the relationship and be able to guide you through the various aspects of franchising telling you what is, or is not, appropriate in a franchise agreement.

If you are considering entering into a franchise or creating a franchise contact Birkett Long’s legal experts to see how they can assist you. If you are considering franchising your business, come along to the free seminar being held with other franchising experts on 24 June, 5.30pm at the Colchester Business Centre, George Williams Way.

Written by franchise specialist, Tracey Dickens, Birkett Long LLP. Tel: 01206 217326, email tracey.dickens@birkettlong.co.uk

Media
Colchester Business Gazette

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