What is franchising?
The below is to say that franchises can come in all shapes and sizes, operating in many different markets. Franchising allows the Franchisor to grow at scale, but without tying up as much capital and at a faster pace. For the individual, becoming a franchisee can allow the use of a proven business model and brand name and potentially reduce the risks of setting up a brand new business.
The British Franchising Association describes franchising as a business relationship between two parties. This comprises of the franchisor, who owns the brand and business system, and the franchisee, who via a franchise agreement is able to trade under the brand.
At HSR Law we advise both Franchisors and Franchisees
Franchise Agreement
The overarching document regulating the relationship between a Franchisor and Franchisee is the Franchise Agreement. Think of the Franchise Agreement as a form of rule book, binding the Franchisee and Franchisor to various contractual obligations. The Franchise Agreement should reflect the Franchisor’s business model and give clear boundaries of what a Franchisee can do. The Franchise Agreement should not only protect the two parties, but any other Franchisees from a Franchisee that is not following the business model and potentially damaging the overall Franchise brand and reputation.
Franchisee Agreements often include:
Most franchise agreements run for a period of 3/5 years. During or towards the end of the Franchise Agreement, the franchisee will either be offered the opportunity to renew their franchise with the franchisor (most likely by entering into a new franchise agreement) or the franchise is to be terminated, and this is likely to be subject to the terms of the franchise agreement.
Essentially the geographic location where the franchisee will be able to offer the products and/or services of the franchise.
Often referred to as to Management Service Fees due to the franchisor.
If this is the case, then an individual should be brought as a party to the agreement. This gives you as the franchisor additional protection.
There are two other types of franchise agreement:
Master Franchise Agreement
This is where a franchisor grants a franchisee a territory and the right to further the franchise the business by franchising their territory to sub franchisees. We have seen this in various sectors, especially when the ultimate franchisor does not know the territory. The relationship between the Master Franchise holder and the franchisee is generally regulated by franchise agreement (as discussed above).
Master Development Agreement
About HSR Law and how we can assist you with your franchising requirements
HSR Law has a dedicated Company and Commercial team comprising 5 fee earners who are ready to assist you with your franchising requirements. However, our clients come from the length a breadth of England and Wales.
We handle matters for both Franchisors and Franchisees, and our niche is acting for small to medium sized franchises and franchisees who anticipate their turnover to be less than £2m per franchise.
We have a dedicated team of 5 colleagues working within our Company and Commercial Team, who spend time to get to know you and your requirements so we can best advise accordingly.
We are small enough to care, but large enough to cope.
Your Franchising Team
Our recent cases have included:
- Acting for the franchisees of a large property franchise looking to dispose of their territory and negotiating the terms with the Franchisor and the Buyer.
- A franchisee looking to acquire further territories from an existing franchisees and the most appropriate route to acquire the business.
- Selling a non-franchised business to a franchised business, which included a deferred payments subject to clawback.
- A sale of a Corporate Franchisee to an existing franchisee via a sale of the entire issued share capital. This included careful negotiation around the free cash within the business and working with the client’s accountant.