Franchise requirements

 

Franchises are a convenient way of operating your own business, as you inherit a tried-and-tested business formula. However, with this comes a higher degree of ongoing regulation. The regulation does not come from franchise requirements imposed by law. Indeed, there are no specific franchise laws or regulations in the UK. The ongoing franchise requirements stem from your relationship with the franchisor and the underlying franchise agreement. This document represents the agreement between you and the franchisor, and sets out the legal rights and responsibilities of each of you.

You may be surprised to find how many obligations and restrictions this franchise agreement imposes upon you. For this reason it is important to seek legal advice from a specialist franchising solicitor throughout all stages of your investment. In particular, you should get a solicitor to carefully analyse the franchise agreement to ascertain the nature and extent of the franchise requirements and commitments that are relevant to you.

Some typical franchise requirements that you should be aware of may include:

  • Term. You are generally locked in to the agreement for a specified term
  • Option for renewal. The franchise agreement will specify when and how you may exercise the option to renew the agreement, and the control that the franchisor has over this
  • Fees. The initial franchise fee can be far outweighed by the cumulative total that you will pay in ‘management service fees’. These ongoing fees are calculated as a percentage of the sales revenue of your franchise
  • Operating requirements. The franchise agreement can be quite prescriptive in the way in which you are to operate the franchise, limiting your ability to apply your entrepreneurial flair
  • Restrictions. You are generally required to commit to restrictions in the geographical area and market you can target, and in the way in which you can use the franchise trademarks
  • Commitments to buy products or services. The franchise agreement may set out ongoing requirements to purchase products or services at a set rate from the franchisor
  • Exit. When and how you may exit the franchise is generally very strictly set out, providing the franchisor with a large degree of control over the process

This list isn’t exhaustive, and you will also be subject to the legal requirements applicable to the particular business entity from which you operate your franchise, whether as a sole trader, partnership or corporate entity.

If you would like to obtain legal advice on franchise requirements, Caven can put you in touch with local specialist franchising solicitors free of charge. So, if you have any questions or would like our help in finding local franchising solicitors please call us on 08001 221 2299 or complete the web-form above. 

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