July 9, 2024
Our franchise experts at Darwin Gray have summarised what steps prospective franchisees should take to protect themselves when entering into franchise agreements.
What are franchises?
Franchises occur when one party (franchisor) grants a licence to another party (franchisee) which enables the franchisee to use the franchisor’s business model and to trade under the franchisor’s brand. During the term of the franchise agreement, the franchisee is given the right to use the trademarks, brand name and intellectual property of the franchisor, which will remain licenced or owned by the franchisor at all times.
Under the franchise arrangement, the franchisee usually pays an initial fee to start their business and monthly royalties thereafter. In return, the franchisor provides initial training, usually an operations manual and ongoing support to the franchisee.
Why are franchise agreements so important?
Franchise agreements are legally binding contracts which govern the relationship between the franchisor and the franchisee. They deal with the scope of the franchisee’s right to use the business name and brand of the franchisor. The agreement will normally set out extensive obligations on the franchisee in relation to daily operations of the franchise business, including marketing, accounting and hiring of staff.
Franchise agreements are usually drafted heavily in favour of the franchisor. This is entirely normal given that the franchisor will wish to protect their brand from unauthorised use by the franchisee. Established franchisors usually adopt a “take it or leave it” approach in relation to their franchise agreements. However, it is still vitally important that a prospective franchisee ensures that they properly reads and understands the terms of the franchise agreement, and seeks specialist legal advice on the agreement, before signing.
What franchisees must look out for when signing franchise agreements:
For advice on any legal aspects of franchising, whether you are a franchisor or a franchisee, contact the franchising team at Darwin Gray on 02920 829 136 or email sthompson@darwingray.com.
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