Advice


Author


Jane Masih is managing director at Owen White Solicitors


“An overzealous or cavalier response to questions can prove very expensive in the long run”


if inaccurate information is provided that the prospective franchisee relies on when making their decision to sign the franchise agreement. For a prospective franchisee, the extent of exclusivity being offered can be a big factor in whether or not they decide to proceed with the opportunity. It is important to give an accurate response about whether the franchisee has territorial exclusivity, or if, in certain circumstances, the franchisor is retaining rights to provide the service itself or through other franchisees. Another key area that can cause concern is what will happen at the time of renewal. It is likely that the agreement will provide for a renewal on the then-current terms; prospective franchisees may overlook the investment required in terms of additional training and refurbishment of premises and equipment, or that the terms of the agreement may change. Many prospective franchisees assume that by trading through a limited liability company they are not liable personally. You must not give the impression that they could not be held liable under the guarantee they are usually required to give as a contracting party to the agreement if the franchise business does not succeed. It is very unlikely that the franchise agreement will enable the franchisee


to simply bring the agreement to an end by giving notice to the franchisor. To give a prospective franchisee the impression that they could simply walk away or receive a refund of the initial investment if they are not happy can lead to disputes. Equally, assurances of minimum profits or promises about the time or investment required to open a unit can come back to haunt a franchisor. Regarding figures representing financial performance, franchisors must make sure that the prospective franchisee knows whether the projections relate to the average performance of the franchise network, or the actual performance of a specific franchisee. It is often a good idea to give a prospective franchisee a range of figures reflecting the results of both a successful and a poorly performing franchisee, so that they can see the range of financial outcomes achieved in the network. Where guidance is given about fit-out costs, the prospective franchisee must be aware of all the variables that need to be taken into account regarding the size or location of the franchise unit they have selected. Recruiting franchisees involves


hard work and commitment, but an overzealous or cavalier response to questions raised at what seems like the final hurdle can prove very expensive in the long run if you don’t answer them clearly and accurately.


■ The Franchisor | 49


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