Franchise Advice
franchise relationship. Arguably the most important of these documents is the franchise agreement, however there are several to consider.
Usually franchisors and franchisees aim for their relationship to continue for a number of years (and sometimes decades). Therefore the legal documentation involved must be extensive enough to cover most eventualities which could occur during that time, but also needs to have a degree of fl exibility to allow the business system to develop.
Prospectus From the initial stages in the relationship you will be discussing the franchise opportunity with the franchisor and obtaining information on the business. It is likely that you will be given a prospectus, which provides an overview of the business and details of the franchise off ering. The prospectus may also contain fi nancial information regarding the business of operating franchisees and fi nancial projections. As a piece of marketing literature, it may not be viewed as a legal document. However, if you are relying on the information contained in the prospectus, it should be read in conjunction with the other legal documents (which may expressly exclude any statements or representations made within the prospectus).
Confi dentiality/deposit agreement As franchisors spend considerable time and money developing their system, they will expect prospective franchisees to keep certain information confi dential. It is relatively common for prospective franchisees to be asked to sign a confi dentiality agreement or deposit agreement, which sets out what information is confi dential and the respective obligations on the franchisee. If a deposit is required, this should be clearly set out together with information regarding the basis on which the deposit will be returned if the prospective franchisee does not proceed.
Disclosure
Many franchisors will choose to present their company and franchise information in some form of disclosure document or
information memorandum. This should contain all pertinent information relevant to the franchise off ering. However, this is not mandatory and some franchisors will choose to spread the information out over a number of communications.
Franchise agreement
It is essential that the complex nature of a franchise relationship be placed on a sound legal footing. The franchise agreement is a fundamental document, which lasts for the life of the franchise (and beyond). The franchise agreement should be uniform for all franchisees in a franchisor’s network. Franchisors will often say that the terms of their franchise agreement are non-negotiable, and this is correct as it means the franchisor will aim to treat all franchisees fairly and on equal terms. The franchise agreement details the franchise system and refl ects the rules of operation for that system, so it is imperative it is consistent for the whole network. The agreement should clearly set out details of the franchisor’s brand and how the franchisee can use it, together with other key terms for the successful operation of the franchise. It will stipulate training requirements, how and when fees should be paid, marketing requirements, and what a franchisee will need to do if it wishes to sell its business. The franchisee’s obligations will be substantial and must be carefully considered to ensure they are in accordance with your understanding. Advice should be sought on the franchise agreement from a franchise solicitor affi liated with the British Franchise Association (bfa) and experienced in franchising.
There may be other documents that run alongside the franchise agreement, such as a software licence to deal with any software developed for use in the business, or a trademark licence if the relevant provisions are not contained in the franchise agreement.
Operations manual The other core document that will continue throughout the life of your franchise is the operations manual, which is the blueprint for how to run the franchise business day- to-day. This should be regularly reviewed and updated by the franchisor as the business develops.
Depending on the type of franchise
you are taking on there may be additional documentation to consider. For example, you may need to enter into a lease for a particular premises (possibly with the franchisor but most likely with a third party). Other standard form documents including order and booking forms, terms and conditions and policies may have been developed by the franchisor for use in its network.
In considering the legal aspects of taking on a franchise, know that you are not alone. Good franchisors will know the ‘ins and outs’ of their agreements and will be happy to answer queries. They will also recommend that you take independent advice. Often franchise specialist solicitors will off er fi xed-fee reviews of the franchise agreement and sometimes lease reviews together with advice on company setup if required.
Most importantly, prospective franchisees are advised to speak to a number of franchisees that are already in the network together with the franchisor to ensure they are happy to join that ‘family’. A franchise relationship can be incredibly rewarding, and is sometimes for life. The bfa is also a great resource for prospective franchisees and I would recommend using the guidance available in order to help your decision making process.
Vicki Mitman
Vicki Mitman is a specialist franchise solicitor and associate in the Birketts Franchise Team with many years experience in advising both franchisors and franchisees. She is also a bfa- Qualifi ed Franchise Professional.
For more information, visit
www.birketts.co.uk/services-for- business/commercial/franchising. aspx or call 01603 756 442
September 2016 |
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