BF April 2010 Issue

139
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Do you agree?
There are many agreements during the early stages of buying a
franchise, Rebecca Jones sums up what you need to know
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HE FRANCHISE agreement is the Deposit agreement The deposit payable is usually credited
most important agreement you Potential franchisees may be required to pay against the franchise fee payable if you proceed.
will sign for your franchise business. a deposit and sign an agreement before the The agreement should also be clear as to the
However there are other early documents franchise agreement is signed and any further terms and timings of a refund if the franchise
you may be asked to sign during the conﬁ dential information about the business agreement is not signed. Under British Franchise
franchisee recruitment process. is disclosed. If you are asked to pay a deposit, Association rules the deposit itself should be
The most common of these agreements it is in your interests to ensure you have an refundable, minus any direct expenses of the
is a conﬁ dentiality agreement and a deposit agreement documenting this, setting out the franchisor if the potential franchisee decides
agreement. These are sometimes known by terms of its return if you do not go ahead. not to go ahead with the franchise. The direct
different names such as a non-disclosure The deposit agreement may secure a expenses should be set out (and ideally limited)
agreement and an intent to proceed or a deﬁ ned territory for a certain length of time. and should not include the franchisor’s time
franchise purchase agreement. It is essential that when you sign the deposit and ofﬁ ce overheads. Ideally, the full deposit
agreement you make a note of the timescales should be refundable if it is the franchisor who
Conﬁ dentiality agreement (if any) in which you need to sign the franchise decides not to proceed with you as a franchisee
You may be asked to sign a conﬁ dentiality agreement, if you wish to proceed, as otherwise (unless this is for good reason, such as a
agreement prior to the franchisor you may lose the option over that territory or misrepresentation in your application form).
releasing any information relating to the franchise. If at any point the process is delayed, Although the franchise agreement is the key
business to you. This is to protect the let the franchisor know as soon as possible, so legal document for a prospective franchisee, the
franchisor’s brand and to ensure that they can discuss your options with you, and if intial documents should also be read carefully,
potential competitors do not steal the necessary, grant you an extension. so that you understand your obligations in
franchisor’s conﬁ dential information. After signing the deposit agreement, you are the important period of discovery prior to
This agreement will prevent you expected, as a potential franchisee, to review becoming a franchisee. If there is anything
from misusing or openly disclosing any the franchise agreement, assess the business unclear in these early documents, you should
information you receive from the franchisor, opportunity further, raise funding and speak to ask the franchisor and/or take legal advice
but should allow you to discuss the existing franchisees. before signing them. ■
information with your professional advisers,
such as solicitors and accountants, and “Although the franchise
should make exceptions for publicly available
agreement is the key
information, or information that you have to
legal document, the
disclose by law.
Most conﬁ dentiality agreements, prior initial documents should
to the franchise agreement, will not contain
be read carefully...”
restrictive covenants, but you should check
this. Restrictive covenants are clauses, eg,
stating that you can not compete with the
business (even if you do not go ahead with
the franchise).
Author’s note
Rebecca Jones works with leading franchise
expert Élise Billy at EXB Direct LLP, a specialist
franchise consultancy. Visit www.exbdirect.com or
www.franchiseereports.co.uk for further information.
www.businessfranchise.com April 2010
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