Franchise Focus


would have acquired their franchise from an existing franchisee. It makes sense, therefore, that all prospective franchisees, irrespective of how they came to be so (and this includes candidates introduced to franchisors by brokers, consultants, etc) satisfy the franchisor’s criteria and pass the same rigorous tests.


“It is not all one-sided in favour of the franchisors; a franchisor has little to gain by being obstructive”


Those franchisees, while accepting the underlying reasons for the imposition of such a condition, nevertheless feel uncomfortable about the franchisor retaining total discretion as to whom they can sell their business. It is a circle that cannot be fully squared and franchisees usually content themselves with having to rely on the reputation of the franchisor by talking to existing franchisees and doing their homework to see whether or not in the past, the franchisor has exercised such powers as it has retained, reasonably. Past conduct is of course not a guarantee as to future conduct but it is now, by and large, accepted practice that most prospective franchisees rely on the reputation of a franchisor amongst its network of franchisees.


It is not all one-sided in favour of the franchisors. One has to remember that a franchisor has little to gain by being obstructive and, in my experience, there has been virtually no abuse of such a condition by a franchisor.


are concerned about other things. They are concerned to secure the franchise and start the business and, having established that, whether they have the right to sell, but do not concern themselves too greatly about the fine detail of the conditions. So, what exactly are these conditions?


• A requirement that the buyer attend training


• Payment of the franchisor’s costs and (sometimes but not invariably) some sort of fee by way of franchise transfer fee


• Obtaining the consent of the franchisor • The franchisor not exercising any rights of first refusal


Most seem innocuous enough but the devil, as they say, is in the detail. The condition


that creates the most difficulty is the one that requires the franchisee to obtain the franchisor’s consent. Franchisees need to be reminded that one of the prime objectives of a franchisor is to ensure that standards are maintained and this means ensuring that all franchisees satisfy the franchisor’s criteria with regard to ability, skill, financial strength, character, etc. Just as franchisors are very careful in the selection of their initial franchisee, so they are keen to be equally careful in approving an incoming franchisee that buys from an existing one. Were they not so careful, they would soon find themselves with a sub-standard network of franchisees, many of whom


As always, a distinction has to be made between those franchisors who are ethical and those who are not. Prospective franchisees therefore need to take care to investigate the franchisor’s track record and background thoroughly and to take proper advice on the franchise agreement because the same set of conditions can have remarkably different effects when operated by different franchisors. For the buyer, the big question is: if it knows that the franchisor is dead set against the idea, why would they want to persist in their proposed purchase? n


MANZOOR ISHANI


Manzoor Ishani is a senior solicitor with Sherrards, a commercial practice advising franchisors and franchisees in the UK and internationally


April 2014 | Businessfranchise.com | 27


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