Franchise Advice
“Ask to speak to existing franchisees. If the franchisor only gives you one or two names, be wary and ask for a fuller list of franchisees to contact”
franchise agreement should be fair to all parties, but it will be weighted in favour of the franchisor to not only protect the business, but the network as a whole, to ensure that, as far as possible, franchisees cannot damage the brand. Accordingly, if you use a lawyer who does not understand this, then there is a risk that he or she will try to negotiate the document, which will almost certainly be resisted by the franchisor and will have the effect of costing you more money, as well as potentially damaging your relationship with the franchisor. If you take your franchise agreement to a
bfa-affiliated lawyer, then, for a fixed fee, they will review the agreement and prepare a report for you setting out the headline terms of the agreement, as well as highlighting any areas of concern that you should raise with the franchisor. Your lawyer should also carry out a trademark search to ensure that the trademark, which the franchisor is purporting to licence to you, is registered (or, at the very least, that a trademark registration is in progress). By having the report prepared for you, you
can take comfort that you fully understand both your rights and obligations under the agreement. This would include confirmation that the fees you are required to pay to the franchisor and the rights being granted to you – for example, the exclusive right to operate within a specific territory – are expressly set out in the agreement and are in line with your expectations. The report should also confirm whether
the franchise agreement is well drafted and contains all the usual rights that a franchisee should expect. These would include the right to renew the agreement at the end of the initial term and the right to sell your franchise business, in both cases subject to fulfilling certain conditions, which will be clearly stipulated within the agreement. If the report confirms that the franchise agreement is not well drafted, then this should raise alarm bells, as it is an indication that the franchisor has not invested in having a proper agreement drawn
up and may be indicative of the quality of the franchise network as a whole. While the franchise agreement is not normally negotiable, if there are any provisions in the agreement that you and the franchisor decide to change – particularly commercial terms – then your lawyer will also be able to prepare a side letter for you setting out those revised terms. In addition to having a report prepared, I
would advise that you: • Ask about the number of franchise failures within the network
• Ask to speak to existing franchisees. If the franchisor only gives you one or two names, be wary and ask for a fuller list of franchisees to contact
• Take advice from an accountant on any financial projections that you have been provided with to ascertain whether they are realistic
• Ask yourself if you have been rushed into signing the franchise agreement by the franchisor
• Find out if your proposed franchise network is a member of the bfa. While there are some good franchise networks that are not bfa members, all members of the bfa are required to comply with its Code of Ethics, promoting ethical franchising.
As a final piece of advice, regardless of whether you have obtained a report on the franchise agreement, make sure that you read it yourself and have clarified any aspects that you do not understand, as it is one of the most important agreements that you will enter into in your lifetime. n
Solicitor Damian Humphrey is a partner at Ashtons Legal. His work involves setting up and growing franchise networks, both in the UK and internationally.
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