Paying for an experienced legal professional’s advice is money well spent if you want to avoid any nasty surprises at a later date, Andy Fraser, founder of Albany Fraser Solicitors, says
Why is it important that a prospective franchisee consults a lawyer before investing in a franchise?
A steadily increasing number of countries, including most recently the Netherlands, have taken steps to regulate the sale of franchises. However, in the UK there is no such regulation and the latin phrase caveat emptor applies. Or less pretentiously, buyer beware.
Importantly, there is not even a legal definition of a franchise in the UK. This means that all sorts of business opportunities, some better than others, can be advertised as a franchise. Not all business opportunities sold as a franchise are full business format franchises and a lawyer with experience in franchising can usually spot the difference very quickly.
Franchise agreements are complex legal documents, often 40-50 pages long and usually designed to protect the franchisor’s business interests. Consulting a lawyer before investing in a franchise is essential, as the lawyer can point out the key terms and obligations on the franchisee and ensure there are no nasty surprises at a later date.
Why is it crucial to instruct a lawyer who’s familiar with the concept of franchising?
Lawyers, like doctors, are becoming increasingly specialised.
You wouldn’t want your GP doing your heart bypass surgery; similarly, you wouldn’t want a lawyer with limited experience of franchising getting their hands on a franchise agreement.
For a start, chances are they will not be able to tell the difference between a good franchise agreement that complies with the European code of ethics for franchising and one that doesn’t.
Also, they may look at the document and think: “This is far too one-sided” before proceeding to make wholesale changes to the contract, which are never going to be acceptable to the franchisor.
When this is presented to the franchisor, they will probably reject all the changes, meaning the franchisee will have wasted money paying their solicitor for making the amendments without actually getting anywhere.
In contrast, lawyers with experience in franchising will know the market and potentially the business model in which the franchisee is looking to invest. They have a greater understanding of what is fair in franchising, where a franchisor may be willing to amend a provision and where they will not.
What should you look for in a lawyer before enlisting their services?
A franchise agreement should always be reviewed by a lawyer who is an affiliate of the British Franchise Association. Affiliates are all accredited by the bfa as having significant experience in franchising.
Instead of seeking to make wholesale revisions to the agreement, a bfa affiliate will usually focus on preparing a report on it for the franchisee, which explains all the key terms and perhaps suggests some areas where the franchisee needs to seek more information or clarification from the franchisor.
The franchisee can send this report to the franchisor, discuss it with them and allow the franchisor to respond to any queries.
Is it important that a lawyer is local to me or can they provide their service no matter where they’re based?
In my view, it doesn’t matter where the lawyer is based.
The recent national lockdown caused by the COVID-19 pandemic showed how easy it is for legal work to be carried out remotely, with face-to-face consultations over Zoom if necessary.
This suits us, as we happen to be a virtual law firm anyway, meaning we have no fixed office premises allowing us to operate on a much more cost effective basis for franchisees.
How does a lawyer charge for their services and how much should I expect to pay?
If your lawyer is still charging by the hour for anything other than litigation, you need to switch firm.
Most lawyers should be able to provide a fixed fee service for reviewing the franchise agreement, preparing a report on it and having a follow-up consultation with you. You should expect to pay in the region of £400-£750 (plus VAT) for this service. Albany Fraser offers a fixed fee of £450 (plus VAT).
Once the business is up and running, what other services can a lawyer offer a franchisee?
There is likely to be a whole host of services a lawyer can provide to a franchisee once their business is up and running.
Some of the more common services would be employment law, advice on employing and maintaining staff; commercial law, advice on terms and conditions of business or commercial contracts with suppliers, if these are not subject to the franchisor’s standard terms; data protection, advice on how you can use personal data received from customers; property law, advice on a lease of any premises or issues arising under it; and corporate law, advice on shareholders’ agreements or the operation of the franchisee company.
The franchisee is unlikely to need much further franchising law advice unless or until an issue arises with the franchisor or the franchisee wishes to renew or sell their franchise.