14 October 2019

As a business model, franchising enables the franchisee to take advantage of an existing brand to quickly develop their business without necessarily having the specialist knowledge in the proposed business activity.

In granting a franchise, the franchisor allows the franchisee to use its name although continuing to exercise control over the franchisee through the franchise agreement. In terms of that agreement, the franchisor will provide assistance to the franchisee in exchange for which the franchisee will make payment to the franchisor.

Advantages for the franchisee can include accessing the franchisor’s purchasing power and benefiting from advertising on a greater scale than the franchisee might otherwise be able to afford on its own.

Regardless, the documentation which is put in place between the parties is important in governing the relationship between the two. From a franchisor’s perspective, it is important that these contracts are managed properly to ensure that in the first instance, they have been completed and signed by the parties properly. This ensures that the franchisor and the franchisee have the ability to enforce the contractual arrangements between them as well as enabling both franchisor and franchisee to rely on those documents for the purposes of, for example, raising funding. Lenders will wish to ensure that the business is founded on properly constituted and enforceable contracts.

Ensuring that relevant dates are properly diarised is essential at the very least to ensure that any necessary steps are taken when the arrangements approach any review or termination dates.

By way of example, litigation has arisen where the franchisor required the franchisee to execute documentation with a dispute arising when the franchisee at a later date denied having done so. The franchisor was unable to produce copies of the signed documents leading to complications in proving the contractual arrangements between the parties.

Whether considering granting or entering into franchise arrangements, the BTO team is well placed to assist in advising on them with the ability to draw on our international network of solicitors around the world when considering cross border arrangements.

Contact: Jeremy Glen Partner jsg@bto.co.uk T: 0141 221 8012