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franchise advice
Why take legal advice?
Legal expert Jane Masih explains why you should take independent legal
advice before signing a franchise agreement
W
HEN DECIDING whether or not to buy a franchise you are If a basic term of the agreement such as how long it lasts can be
likely to have been told that you should take independent legal overlooked, what other essential terms can be missed by the franchisee
advice before signing the franchise agreement. At the same time deciding not to take professional advice and assuming that, because
your prospective franchisor is likely to have told you that the terms of the franchise others have signed the agreement, it will be OK?
agreement cannot be negotiated. If this is correct, what is the
“By not taking advice,
A legal review should highlight if the franchisee’s
benefi t of paying for legal advice, if nothing can be changed?
you run the risk of
option to renew is conditional, meaning that their
An independent review of the agreement will ensure right to renew is not automatic and the franchisor can
that you understand the nature of the legal obligations you
entering into what may
insist on certain requirements being met before the
will be bound by if you sign the agreement. By not taking
be one of the most
agreement can be renewed. Common requirements
advice, you run the risk of entering into what may be one of
expensive investments
include the franchisee attending further training, updating
the most expensive investments you will ever make, without equipment and/or vehicles and replacing signage. It is
having an accurate understanding of the ‘small print’.
you will ever make.”
not always the case that the new franchise agreement
By way of example, a common misunderstanding often occurs around how will be identical to the original agreement. Franchise systems evolve and
long you are committed to the arrangement. Many franchise agreements grant there are often legitimate reasons for a franchisor wishing to change the
the franchisee rights for a fi xed period of time. You may assume you have the agreement. Many franchisees make the mistake of assuming that if they
right to ‘resign’ from the business, as you can from a job, if the business doesn’t renew the agreement it will be identical to their old agreement. Often
go as you had hoped. Nine times out of ten, this is not the case. Your franchisor the agreement provides that the franchisee has the right to ‘the then
will be expecting you to operate the business throughout the fi xed term and current agreement’, which could be substantially different by the time the
there are only limited ways in which the agreement will come to an end before franchisee wants to renew.
the expiry of the fi xed term. These include: Although a legal review of the agreement may not result in changes
to the agreement it will give you knowledge about the contractual
● Selling your franchise business in accordance with the rules set out in the arrangements you are signing up to. The time to change your mind is
agreement. before you sign, not afterwards.
The franchise agreement is not simply part of the franchisor’s
● The franchisor terminating the agreement because you have marketing literature. It is a legal document creating rights and imposing
breached one or more of the provisions in the agreement, which obligations. The most important reason why you as a prospective
gives them the right to terminate. franchisee should ask a solicitor who is knowledgeable about franchising
to review the agreement is to
Termination risks an expensive dispute with the franchisor and must ensure that you know, in plain
jane masih
be avoided. Many franchisors will look for compensation for the loss of English, exactly what you are taking
Jane heads up the
specialist franchise team at
management services fees for the remainder of the fi xed term and the costs on in terms of legal obligations
Owen White Solicitors
of recruiting a replacement franchisee. While you, as a prospective franchisee, before signing on the dotted
advising franchisors and franchisees in
reading the agreement may not understand that the initial term of the line. Ignorance can prove to be the UK and internationally
agreement is fi xed, an experienced franchise lawyer certainly will. expensive! ■
www.businessfranchise.com December/January 2010
BF065_Masih_Dec-Jan09 x.indd 1 19/11/2009 11:57
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