FRANCHISING offers real opportunities for a successful business looking to expand.
One of the biggest challenges is to ensure the franchise agreement fulfils all legal obligations.
Law firm Tollers is one of the few practices in the county that can offer this support. The firm, affiliate members of the British Franchising Association, has specialists who can help business people through the process.
So, what does franchising entail?
A franchise agreement means the business owner (franchisor) grants a package of rights to a third party (the franchisee).
This agreement will cover points like the right to operate a business based upon and using the franchisor’s proven know-how, system and brand. In most cases the franchisee is allocated an area and, depending upon the nature of the business, this can be on an exclusive or non-exclusive basis. Training and ongoing support will be included to show the franchisee how the business should be operated.
In return for the package of rights the franchisee will make payments to the franchisor. This may include some or all of the following:
+ An initial fee in consideration of the grant of the franchise.
+ Ongoing regular payments on a monthly or quarterly basis which can be a fixed amount or (more often) a percentage of the revenue earned by the franchisee.
+ A contribution to a central marketing fund administered by the franchisor.
The rights and obligations of both parties are set out in the franchise agreement. This is often a lengthy document which is one sided in favour of the franchisor. This is not unreasonable given that the franchisor is allowing the franchisee access to the valuable trade secrets and know-how developed by the franchisor who will have invested significant time, money and effort. However, the agreement should not put the franchisee at an unreasonable disadvantage.
There is no UK specific legislation in relation to franchising but reputable franchisors will adhere to the European Code of Ethics for franchising. Often they will be members of the British Franchising Association, an advocate of ethical franchising.
If you are interested in growing your business through franchising or would like our assistance to drafting or reviewing a franchise agreement, then talk to Tollers on 01604 258558 and ask for Liz Appleyard or Ayesha Devlia in the Commercial Team.
