Franchise agreement

This template grants a non-exclusive franchise for a single outlet in a defined territory. The franchisee trades under the franchisor's brand and system, pays an initial fee and continuing fees, and runs the business to the standards set out in the operations manual.

The manual is incorporated by reference, which gives it contractual force. It has to exist, it has to be current, and the franchisee has to have it. A franchise agreement that points at a manual nobody has written is an agreement with a hole in the middle of it.

Schedule 1 drives the rest

The territory, the premises, the products and the trade marks are all set in Schedule 1, and most of the operative clauses read back to it. Excluded customers and major accounts, the two categories the franchisor keeps for itself, sit there too. If the schedule is vague, the obligations are vague.

Exclusivity is the main structural choice. As drafted the territory is non-exclusive and the franchisor reserves rights at clause 2.2. If you intend to give an exclusive territory, that clause has to be amended, and competition law advice should come first.

What the agreement covers

Appointment, term and renewal. Fees and payment. Initial obligations and opening. Supply of products, premises, operation and staffing. The franchisor's continuing obligations and the franchisee's. Intellectual property, indemnities, warranties, assignment, and the sale of the franchise business. Termination and its consequences. Restrictive covenants. Anti-slavery and anti-bribery, confidentiality, data protection, force majeure and change of law, and liability. The schedules carry the commercial details, the business and marketing plans, and the franchisor's price list and terms of sale.

Regulation, and the part that is not regulation

Franchising is not separately regulated in the United Kingdom. There is no registration and no statutory disclosure document. Franchisors who belong to the British Franchise Association must follow its Code of Ethics, which requires full and accurate pre-contract information and prohibits earnings claims that cannot be supported. Membership is voluntary. The general law on misrepresentation is not.

Two practical points

The franchisee should take independent legal and financial advice before signing, and a franchisor should want that to happen. Where the franchisee is an individual or a newly formed company, the franchisor will usually also ask its owners for a personal guarantee, which is a separate document.

The restrictive covenants at clause 18 bind the franchisee after the agreement ends. They are enforceable only so far as they go no further than is reasonably necessary to protect the system and the network, so widening them tends to make them weaker rather than stronger.