If you are thinking of setting up a franchise, here is a quick guide through the legal and commercial issues that you should consider:
Confirm that your business model suits franchising. A business model that can be easily replicated, can thrive in different locations, and allows you to make a good margin is a natural fit.
You should also establish a pilot operation to prove your franchise’s viability to potential investors and franchisees. Normally, a pilot operation will run for not less than a year and will help identify improvements and problem areas. Without a pilot operation, you will be relying on the expertise of your franchisees to develop your business.
Brand recognition is an important part of a successful business and potential investors and franchisees will want assurances that your brand is free from any trade mark or passing off claims. Make searches of the relevant registers and the market before adopting a trade mark or a trade name. Once satisfied that your marks are not already registered or in use in the relevant market then you should apply for registration. Guidance on this process is provided by the Intellectual Property Office.
You should produce a detailed operations manual which sets out the “know-how” needed to operate the franchise. You must emphasise the importance of adhering to your methods and processes to ensure that the same quality standards are maintained across all franchises. The operations manual should form part of the franchise agreement.
Franchisees will want to know how much support will be provided to operate the franchise. You should formulate a training programme and outline the advertising and marketing support that you will provide to ensure that the business realises its potential. These details should be included in the operations manual.
You will need a franchise agreement which sets out the commercial terms of your arrangement with the franchisee such as the duration, territory, royalties, obligations of the parties and any restrictions on activities. Use experienced lawyers to draft this key agreement and potential franchisees should be required to sign a confidentiality agreement before they are allowed to read the agreement as it contains your “know-how” for operating a successful franchise.
If retail premises are needed to operate the franchise, the landlord may require you to take a headlease of the premises and grant a sublease to a franchisee where the franchisee does not have a track record. To ensure that the premises are vacated on termination of the franchise, the term of the sublease and the franchise agreement should be aligned and you should “contract out” of the security of tenure provisions under the Landlord and Tenant Act 1954. Experienced lawyers should be used to assist with the headlease and any sublease.
This is a quick guide and does not outline all legal and commercial issues that prospective franchisors need to consider.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.