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Can a franchisor make me buy 100 per cent of the goods needed for the business from them?
Competition law limits a franchisor’s ability to require franchisees to purchase more than 80 per cent (in value) of their requirements from the franchisor, but there are exceptions to this rule. The first is that if the franchisor owns the premises from which the franchisee operates - this usually only applies to retail franchises. The second exception, which is much more important, applies if the franchise agreement lasts for only five years. Since most franchise agreements in the UK do last for five years, this exception effectively gives franchisors pretty much a free hand to oblige franchisees to purchase products from them. If franchisees are obliged to purchase products from the franchisor, franchisees should protect themselves in terms of the price that the franchisor can charge. At the very least, franchise agreements should oblige franchisors that require their franchisees to purchase products from them to supply those products at competitive rates. In an ideal world, from a franchisee’s perspective, the franchise agreement should specify the maximum mark up over costs that the franchisor can make to those products.
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