News & Views

The franchise agreement from the buyer’s perspective


I often get asked by those buying a franchise, “What is the franchise agreement and what should be in it?” As a franchise solicitor I have come across some interesting scenarios, so let me explain  below or you can watch the short video below.

When you buy a franchise, you are effectively buying the rights to run a business – a franchise agreement sets out the rules that govern the way the business is run, and importantly, what happens in the longer term as well.

Does the buyer need to take advice on a franchise agreement before signing?

This is absolutely essential. The agreement should contain the various aspects of running the business and certain rights that you need protected as an operator of the franchise business e.g. You need to know that the brand you are buying into will remain as valuable as it is on the day you bought into it.

Also, despite being drafted by a solicitor, this does not mean that it is ethical. This is where the British Franchise Association comes in – ethical franchisors will abide by the code – it exists to ensure that franchisees don’t get ripped off and agreements don’t contain hidden clauses that could be very expensive for them.

How much will a solicitor charge to review a franchise agreement?

Franchise solicitors will charge anywhere from £350-£700. For this fee, the solicitor will read and understand the agreement and explain it to you.

How type of scenario does a franchise agreement protect the franchisee against?

Sometimes franchisees will seek advice only once there is a problem and litigation is looming. Perhaps the franchisor hasn’t done what he was meant to e.g. he hasn’t provided the promised advertising support. A solicitor will review the agreement to check that this type of type of grievance is protected against. The cost of legal advice is only small when you consider a franchise business could cost £30,000.

What should the franchise agreement contain?

Some examples are as follows:

  • If it has been explained to you by the franchisor that the franchise will cost £30,000 and of this, £3,000 is spent on launching the business, then you need to ensure that this is written in the agreement, otherwise it is not binding.
  • Or, at the end of a 5 year period you want to sell the business, what happens? If you leave the network, are you legally allowed to carry on in the business or do you have to leave it completely?
  • It may seem basic, but the franchise agreement must contain a right to use the brand you are buying into.
  • And, it must say what the franchisor will do if someone is using their brand without their consent i.e. if a copycat operation springs up next to you on the high street, is the franchisor obliged to protect you?

As you can see, it is critical to have strong legal foundations in place for your franchise business. If you need advice on getting started or resolving a dispute, please get in contact with us at Sherrards Solicitors in London (020 7478 9010) or St Albans, Hertfordshire (01727 832830) or visit our franchise services page.

 

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