Franchise Q&A [Q] What legal
expenses will I incur taking on a franchise and are any of these costs covered by the franchisee fee or franchisor?
[BIO] ERICA
WESTERMAN is head of commercial and IP, and partner at Berry Smith, Cardiff
[Q] If I am unhappy with my franchisor can I share my views with others?
[BIO] JOHN
PRATT is a partner at Hamilton Pratt Business and
Franchise Solicitors
he or she would be well advised to base any comments on verifi able facts and generally avoid unnecessarily infl ammatory language.
[Q] I have a lump sum that I want to put to good use. How does a franchise opportunity compare with other kinds of investments?
[BIO] COLIN
[A] Most franchise agreements impose a general obligation on franchise owners not to
[A] There are no hard and fast rules about what costs are to be covered by either the
franchisor or franchisee. It is usually the case, however, that the franchisor will have asked their solicitors to draft the franchise agreement and the confi dentiality agreement, which will be the same agreement they use for all their franchisees to maintain consistency. The operations manual is, again, something that the franchisor will have had prepared. Therefore, it is usual that the franchisor will have incurred the legal costs of producing these documents.
The franchisee will ask solicitors to review any documents the franchisor has provided and it is commonplace for the franchisee to cover these costs.
What exactly is included in the franchisee fee can vary enormously from case to case and will be specifi c to each individual franchise. Franchisees should be sure that they have value for money and that the legal documentation specifi es everything that is included in that franchisee fee and what is or is not refundable.
bring their franchise into disrepute. Sometimes franchise agreements go further and require franchisees not to denigrate the franchisor or, indeed in some instances, not to talk to others or participate in any online activity with the intention of attacking the franchisor. As a result, it is always important to check the provisions of your franchise agreement fi rst to see what contractually you are not allowed to do. Having said that, the courts would be very reluctant to prevent franchisees from airing valid concerns about their franchisor and so would interpret any contractual prohibitions narrowly. Even if there are no contractual restrictions,
care does need to be taken. Commercial common sense suggests that a public attack on a franchisor will, inevitably, raise the stakes of any dispute. Clearly, most franchisors cannot allow anyone, let alone their own franchisees, to make unfair or untrue comments about them that would be damaging, not only to the franchisor but also to other members of the network. You can certainly expect a very strong reaction from a franchisor that felt it was being treated unfairly. Under the circumstances that a franchisee
were to seek information from other franchise owners or encourage them to take joint action in relation to the activities of the franchisor –
CHADWICK is director of franchise development at NatWest
[A] An investor, whether putting money in the stock market or real estate, should
always consider the return on their investment (ROI). This should also be true of franchise investments. When looking at franchise opportunities you need to look carefully at the potential ROI. Since a franchise purchase involves investments of both time and money, however, you should expect more than you would from a passive investment. In a franchise you are investing time and management skills in addition to your capital. The key is fi nding a franchise system that provides the opportunity to invest your personal assets of time and talents. The franchisor develops a business model or method of operation that employs the franchisee’s personal assets in such a way that it drives income to levels higher than those achieved from an investment of capital alone. These are the systems whereby a very successful operator can potentially generate returns greater than the sum of the total initial franchise investment – and possibly within a relatively short period of time.
Contact details
Email your questions to:
editor@businessfranchise.com
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Businessfranchise.com | June 2012
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