Why is it important that a prospective franchisee consults a lawyer before investing in a franchise?
A steadily increasing number of countries including, most recently, The Netherlands have taken steps to regulate the sale of franchises. However, in the UK there is no such regulation and the latin phrase Caveat Emptor applies or, less pretentiously, ‘Buyer Beware’!
Importantly, there is not even a legal definition of a “franchise” in the UK. This means that all sorts of business opportunities, some better than others, can be advertised as a franchise. Not all business opportunities sold as a “franchise” really are full business format franchises and a lawyer with experience in franchising can usually spot the difference very quickly.
Franchise Agreements are complex legal documents, often 40 – 50 pages long and usually designed to protect the Franchisor’s business interests. Consulting a lawyer before investing in a franchise is essential as the lawyer can point out the key terms and obligations on the franchisee and ensure that there are no “nasty surprises” for the franchisee at a later date!
And why is it crucial to instruct a lawyer who’s familiar with the concept of franchising?
Lawyers, like doctors, are becoming increasingly specialised. You wouldn’t really want your GP doing your heart bypass surgery, similarly you wouldn’t want a lawyer with limited experience of franchising getting their hands on a franchise agreement. For a start, the chances are that they will not be able to tell the difference between a good franchise agreement that complies with the European Code of Ethics for Franchising and one that does not. Also, they may look at the document and think: “No, this is far too one-sided” before proceeding to take their “red-pen” out and make wholesale changes to the contract which are never going to be acceptable to the Franchisor. When this is presented to the franchisor, they will probably reject all the changes meaning that the franchisee will have wasted a lot of money in paying their solicitor for making the amendment without actually getting anywhere. In contrast, lawyers with experience in franchising will know the market (and potentially the business model in which the franchisee is looking to invest). They have a greater understanding of what is “fair” in franchising, where a franchisor may be willing to amend a provision and where they will not.
What should you look for in a lawyer before enlisting their services?
A franchise agreement should always be reviewed by a lawyer who is an Affiliate of the British Franchise Association. Affiliates are all accredited by the BFA as having significant experience in franchising. Instead of seeking to make wholesale revisions to the Agreement, a BFA Affiliate will usually focus on preparing a Report on it for the franchisee which explains all the key terms and perhaps suggests some areas where the franchisee needs to seek more information or clarification from the franchisor. The franchisee can send this report to the franchisor, discuss it with them and allow the franchisor to respond to any queries made.
Is it important that a lawyer is local to me or can they provide their service no matter where they are based?
In my view, it doesn’t matter at all where the lawyer is based. The recent national lockdown caused by the Covid-19 pandemic just goes to show how easy it is for legal work to be carried out remotely with face-to-face consultations over Zoom if necessary. This suits us as we happen to be a “virtual” law firm anyway, meaning that we have no fixed office premises, allowing us to operate on a much more cost-effective basis for franchisees.
How does a lawyer charge for their services and how much should I expect to pay?
If your lawyer is still charging by the hour for anything other than litigation, you need to switch firm. Most lawyers should be able to provide a fixed fee service for reviewing the Franchise Agreement, preparing a report on it and having a follow-up consultation with you. You should expect to pay in the region of £400 – 750 plus VAT for this service.
Once the business is up and running, what other services can a lawyer offer a franchisee?
There is likely a whole host of services that a lawyer can provide to a franchisee once their business is up and running. Some of the more common services would be: (i) Employment Law – advice on employing and maintaining staff; (ii) Commercial Law – advice on terms and conditions of business, or commercial contracts with suppliers (if these are not subject to the Franchisor’s standard terms); (iii) Data Protection – advice on how you can use personal data received from customers; (iv) Property Law – advice on a lease of any premises or issues arising under it; (v) Corporate Law – advice on shareholders agreements or the operation of the franchisee company. The Franchisee is unlikely to need much further franchising law advice unless or until an issue arises with the franchisor or the franchisee wishes to renew or sell their franchise.
Biography – Andy Fraser, Albany Fraser Solicitors
Andy Fraser is the founder of Albany Fraser Solicitors, a commercial law firm with franchising at its heart. He set up Albany Fraser in 2019 with a view to helping franchisors and franchisees of all shapes and sizes make smarter franchising decisions. Andy is accredited by the British Franchise Association as a ‘Qualified Franchise Professional’ and is one of only a small number of lawyers in the UK to have been awarded this status. In addition to being a solicitor, Andy originally trained as a franchise consultant with one of the UK’s leading franchise consultancy practices where he worked on franchising projects for brands such as Ralph Lauren, American Eagle Outfitters, Esprit and Whittard of Chelsea.