Legal review of the franchise agreement

You have now decided to take the plunge, perhaps give up your job and invest your life savings, and become a franchisee. You like and trust the franchisor and, to date, you have understood every piece of information given to you and are looking forward to undertaking training and starting your new franchise business. You are then landed with a 30+ (and sometimes 60-80+) page franchise agreement which appears totally one-sided and which you are told is non-negotiable. You are then told (or at least you should be) that you need to instruct a solicitor.

Most people only come into contact with a solicitor when they are selling their house, divorcing their spouse, making a will or if they need to go to court. All negative experiences! So how do you choose a solicitor to review the franchise agreement? Well you do not go back to the solicitor who dealt with your house conveyance or your grandmother's estate. Almost all solicitors today are specialists in particular fields of the law and franchising is no exception.

A solicitor who does not understand franchising will often seek to negotiate and change the franchise agreement (often running out of red ink in the process), will tell you that it is totally unreasonable and that you should not sign it under any circumstances. They will then charge you a fee based on the time taken to undertake this entirely futile exercise.

Most solicitors who specialise in franchising also act for franchisors and draft franchise agreements as part of their day to day work; they understand that the main purpose of the franchise agreement is to protect the intellectual property of the franchisor and of the network and that this in turn protects incoming franchisees who become part of that network. The agreement must be uniform for all franchisees as must the franchise system. They will be able to report on the franchise agreement (rather than seek to amend it, unless necessary for legal or ethical reasons), they will be familiar with the British Franchise Association Code of Ethics. They will also be able to provide a comprehensive report highlighting your rights and duties, anything that may be unusual in the contract, anything that may be missing which they would expect to see in an ethical business format franchise agreement and areas that you need to clarify with the franchisor. If anything needs to be changed or clarified then this is usually set out in a legally binding side letter signed at the same time as the agreement and attached to it.

A full list of solicitors who are accredited by the British Franchise Association (bfa) to provide specialist legal advice can be found in the accredited franchise solicitor listings. You should agree the fee and the timetable in advance and ask them to tell you how much franchising work they do so that you are sure that you are dealing with their franchising expert and not an inexperienced person working for the accredited firm. It is usually not necessary to meet the solicitor and therefore it does not matter where they are located – everything can be done by post, e-mail and telephone.

Such a report should be undertaken for a fixed fee of about £400-500 (but may be up to £1,000 depending upon who you use and what you want doing) and should only take about a week or two. If you need help with any side letter then you may incur an additional charge. Further, if you are taking a lease of premises you will need advice from a property solicitor and if you are buying an existing business at the same time as entering into the franchise agreement (whether from an outgoing franchisee or directly from the franchisor) you will need legal advice on that aspect of the transaction.

The experience should not be a negative one and should assist you to make an informed commercial decision as to whether to proceed with the franchise. However, having the contract reviewed is only one aspect of the due diligence process which you need to undertake, the most important part of which is to speak to as many existing franchisees as possible, a full list of whom should be given to you by the franchisor. Your solicitor may also be able to make general comments about the franchise.

Whilst a well drafted, ethical franchise agreement does not make a good franchisor (there is a lot more to it than that), a franchisor that has not made the effort to take proper legal advice and to have a document prepared that is well thought out and drafted by an experienced franchise solicitor, should be viewed with caution!

 
 
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