We are pleased to report that following the recent arrival of Amy Leite at the firm we are now able to advise franchisees on all franchise related matters.
Amy has specialised in franchise matters for several years and gives the low-down on franchises below.
A franchise is generally described as a “business in a box.” A franchisee pays a franchisor an initial fee to be granted the rights to use the franchisor’s tried and tested system, know-how, methods, trade name and trade marks to operate a business within an allocated territory.
For an ongoing weekly or monthly fee during the term of the agreement the franchisor will provide ongoing support, guidance, updates/modifications to the system and training.
Examples of well known franchises include Costa, McDonalds, Chem-Ex, Green Thumb and Dyno Rod.
A franchisee will be expected to enter into an extensive franchise agreement which sets out all of the obligations and liabilities of both parties. A typical franchise agreement is 40 to 70 pages long and the terms will be heavily weighted in favour of the franchisor.
Particular points prospective franchisees need to be aware of
Typically, but not always:
- the initial term of a franchise agreement will be for a fixed term of 5 years but sometimes it is as much as 10 years
- the franchisee does not have a right to terminate the franchise agreement within the fixed term because the franchise is not working out for them or they have changed their mind. Therefore, franchisees can find they are stuck in a franchise that is not what they expected
- the franchisee will often have performance standards or criteria to meet and failure to do so can result in termination
- the franchisee often has to devote their full time and attention to the business meaning they cannot have another business interest without the franchisor’s express approval
- there will be restrictions upon the franchisee post termination which prevent the franchisee from carrying on a similar or competing business for certain periods of time in certain areas
- the customers of the franchisee’s business ultimately belong to the franchisor
- the franchisee’s business does not belong to the franchisee indefinitely, a franchise agreement and any rights to renew come to an end at some stage whether by expiry, termination or sale
- If the franchisee is a company, rather than an individual, an individual will be required to guarantee each and every obligation upon the franchisee company in the franchise agreement including any indemnities. No such guarantee will be given by the franchisor
- The franchise agreement will contain an indemnity, requiring the franchisee to indemnify (agree to make good) any losses and costs the franchisor may suffer as a result of the franchisee’s failure to properly perform the terms or breach of the agreement
- Franchisors have access to franchisees financial information and accounting through stringent reporting requirements in the franchise agreement
The agreement will contain an entire agreements clause and multiple non-reliance provisions which are designed to prevent any statements, representations, warranties or documents which are not set out in the franchise agreement from being relied upon. This is particularly relevant where franchisors provide cash flow and profit forecasts before franchisees decide to enter into a franchise agreement but which are then not referred to in the agreement at all.
Franchise Agreement Reviews
The key thing to do when considering buying a franchise is to take advice on the terms from a solicitor who is experienced in franchising. It is very important a franchisee is able to go into the agreement with a clear idea of their obligations and the risks.
We provide an extensive and thorough agreement review service on a fixed fee basis. Our service is praised by clients as exceeding expectations, being extensive, clear and thorough. We believe that this is because our service goes further than the norm of simply providing franchisees with a written report on the terms and stating which are standard.
If you would like to discuss the review service or obtain a fixed fee quote for the service please visit our Fixed Fee Franchise Agreement Review page