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Is there any legislation specific to franchising in the UK?
The UK contrasts significantly with many countries, particularly the USA, where franchising is heavily regulated with disclosure and registration obligations. Franchising in the UK relies mainly on regulation by a raft of general commercial law principles and self regulation by the British Franchise Association. Looking at the various commercial law principles that may affect franchising, the Trading Scheme Act 1996 was brought into force to try and address the then growing issue of pyramid selling. Pyramid selling occurred where, rather than selling themselves, ‘franchisees’ found it more profitable to appoint further ‘subfranchisees’ to sell the goods or services. The majority of franchise agreements do fall within the scope of the Trading Schemes Act 1996, but are able to benefit from either of two exclusions - namely that they are part of what is known as a single tier trading scheme or all franchisees in the network are registered for VAT. Franchising is also subject to general commercial laws, the most important of which is the Unfair Contract Terms Act 1977. Although business-to-business contracts are generally excluded from UCTA, it applies where a contract has not been negotiated, which is generally the case with franchise agreements. This means that any limitations on liability that a franchisor puts in his franchise agreement must be reasonable. A growing concern to franchisors is the draft Unfair Terms in Contracts Bill. Although this is some way off becoming legislation, it could have a substantial effect on franchise agreements, although it will not effect franchise agreements that have already been entered into. Under the Bill, any term in the franchise agreement that has not been negotiated by the franchisor and franchisee will be subject to the reasonableness test - if it is held not to be reasonable then the term will be unenforceable. This could pose substantial challenges to franchisors that need to be able to protect their brand in the franchise agreement and seek to retain some uniformity across their networks.
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