Franchise agreements

Why is legal advice important before signing a franchise agreement?

Franchise agreements are often prepared by the franchisor and designed to protect its brand, business model and commercial interests. That does not necessarily mean the terms are unsuitable, but it does mean you should understand their implications before signing.

An agreement may run for several years and affect your ability to operate, grow or sell your business. A careful review can help you assess whether the arrangement fits your plans and whether there are terms you should query or seek to negotiate.

Our advice can help you understand the agreement, identify areas requiring particular attention and make a more informed decision before making a financial commitment.

What should you look for in a franchise agreement?

Every franchise is different, but there are several areas prospective franchisees should examine carefully.

Fees and ongoing payments

Check the initial franchise fee and all ongoing charges. These may include royalties, marketing contributions, software costs, training fees or other payments. Understand how they are calculated, when they are payable and whether they can change during the agreement.

Territory and exclusivity

Some agreements give franchisees a defined territory or particular protections against competition from other franchisees. Others provide more limited protection. Check whether the territory is exclusive, how it is defined and whether the franchisor can operate directly or appoint other franchisees nearby.

Training and ongoing support

Understand what training, marketing, operational support and business guidance the franchisor is committed to providing. Look carefully at what the agreement promises, rather than relying solely on verbal assurances or promotional material.

Performance obligations

The agreement may impose targets, minimum purchasing requirements, operating standards or other performance conditions. Make sure these obligations are clear and realistic in the context of your business plan.

Renewal and termination

Check the length of the agreement, whether renewal is available and what conditions apply. Pay particular attention to circumstances in which either party can terminate the agreement, including any opportunity to remedy a breach before termination.

Restrictions after the franchise ends

Some agreements restrict what a franchisee can do after leaving the network. These may include restrictions on competing activities, soliciting customers or recruiting staff. The wording, duration, geographical scope and circumstances of these restrictions matter, and their enforceability depends on the applicable law and facts.

Can you negotiate a franchise agreement?

Some franchisors use standard agreements and may be reluctant to change their terms. Others may be prepared to discuss particular provisions, depending on the franchise and the circumstances.

It is still worth understanding the terms before signing. Legal advice can help you identify which clauses carry the greatest commercial risk, which questions to raise with the franchisor and whether the agreement reflects what you have been told about the opportunity.

If a promise about territory, support, fees or renewal is important to your decision, establish whether it is included in the written agreement. Do not assume that a verbal assurance will override the contract.

Understanding the wider franchise opportunity

The franchise agreement is only one part of your decision. You should also assess the business model, financial projections, working capital requirements, expected operating costs and the support available from the franchisor.

It can be helpful to speak to existing franchisees and obtain independent financial advice before committing. Ask how the business operates in practice, what support is provided and what challenges they have encountered.

The British Franchise Association (BFA) is an industry body that provides information about franchising and operates a membership framework. If a franchisor states that it is a BFA member or accredited, check the claim and understand what it means. Membership or accreditation should not replace your own due diligence or independent legal advice.

What happens if you want to leave a franchise?

Leaving a franchise may be more complicated than simply closing the business. The agreement may set out specific termination procedures, notice requirements, transfer conditions and continuing obligations.

If you want to sell your franchise, check whether the franchisor’s consent is required, whether a buyer must meet specified criteria and whether transfer fees apply. If the relationship has broken down, it is important to understand the contractual grounds for termination and the potential consequences before taking action.

At the end of the arrangement, you may also need to address outstanding payments, the use of the brand, confidential information, customer records, equipment and any post-termination restrictions.

Getting advice before serving notice, stopping payments or attempting to transfer the business can help you understand the risks and available options.