Franchise Advice
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The
Solicitor Jane Masih breaks
down the franchise agreement and
what’s in it for you
Franchise agreements vary in content and quality. If the franchisor is a member of the British Franchise Association (bfa), you will have the comfort of knowing that the agreement has been vetted as part of the membership accreditation process.
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What is the cost and what do you get? There is usually an initial fee. The agreement should list what you are paying for, which should include the licence fee and training. There is ordinarily an ongoing fee, often called the management service fee. Typically it is calculated as a percentage of the gross revenues of your business. Sometimes, it is fi xed or a minimum fi xed amount is payable. The agreement should record what support you will get from the franchisor, both at the outset and ongoing. This may include continued regular training, technical support and the procurement of supplies or guidance as to where they can be obtained. The agreement should clearly set out your right to use the franchisor’s name and trademarks, which should be listed in a schedule and confi rm that the franchisor either owns the trademarks or is entitled to grant you the right to use them. You should be granted the right to use the franchisor’s system. The diff erence between setting up on your own and
ou’ve decided on the franchise opportunity for you and now you’re waiting for the franchise agreement. What sort of document should you expect?
buying a franchise should be that there is an established and successful methodology for operating the business. Typically, the agreement will refer to a territory and, sometimes, an exclusive territory. An exclusive territory does not necessarily mean that your area is protected from intrusion by neighbouring franchisees. Often, all that the agreement will say is that the franchisor will not grant any other person the right to operate a franchise business within your area. It will usually prohibit you from actively marketing outside your territory.
What have you got to do? The agreement will contain detailed rules about how you must operate the business. Franchise agreements are more specifi c and demanding than employment contracts; it will require you to comply with the franchisor’s business system and follow the policies and procedures of the franchisor’s manual.
What can’t you do? Any well-drafted franchise agreement will prohibit your involvement in a competing business and may prohibit you from being involved in any other business whatsoever. This is an important consideration if you intend to run the franchise alongside an existing business.
How long does it last? Most franchise agreements are for a fi xed term, commonly fi ve years but can be 20, and don’t permit the franchisee to end them early by giving notice.
If you decide after a few months that you do not want to continue, there are limited circumstances in which you can bring the agreement to an end without the consent of the franchisor. This may involve lengthy and expensive legal proceedings, so be sure of your commitment for the minimum fi xed term before signing the agreement.
What happens when it ends? At the end of the initial term you should have a right to renew. You will need to give notice of this some months before the end of the term. It is important to familiarise yourself with these provisions at the outset and diarise the relevant dates.
If the franchise has not been the success you hoped for, the agreement will expire at the end of the initial term and there will be provisions dictating what should happen at that point. You will be required to stop trading, stop using the franchisor’s trademarks, and eff ectively hand your business back to the franchisor.
As will be apparent, franchise agreements are often lengthy technical documents weighted in favour of the franchisor. A well- drafted agreement will aff ord you some protection and the key is to ensure you understand the commitments of all parties before you sign on the dotted line.
About the author Jane Masih is head of franchising
at Owen White Solicitors July/August 2017 |
BusinessFranchise.com | 43
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