Thursday 16 May 2013

Top 3 Pitfalls in Franchise Agreements

More than 1 in 2 potential franchisees sign up to the standard franchise agreement of the brand they decide to go into business with without taking legal advice.
David Hughes of Garden House Solicitors
Article by David Hughes

The most common question of those that do take advice is to know what the pitfalls of the agreement are.

The top 3 pitfalls of franchise agreements, (which are a surprise for those who don’t take legal advice!), are:

1. It’s your full time job. Most franchise agreements contain a clause stating that you will have to devote your ‘full time and attention’ to the franchise and are not allowed to be involved in any other business while you are part of the franchise. This means that you will be in breach of the agreement if you are continuing to work part-time in another business (even a non-competing one) while you build up your franchise business.

2. You can’t choose your suppliers. A franchise agreement will state that you have to get your supplies from the franchisor at their list prices – so even if you can find the same equipment or products at a cheaper price elsewhere you do not have the discretion to buy from them.

3. No right to walk away. Almost all reputed franchises are for a fixed 5 year term with the option to renew at the end. This means you are tied in for 5 years! Usually the only way out is to sell the franchise. If you stop trading and walk away early, then you will likely be liable to the franchisor for lost royalty fees for the unexpired part of your franchise term.

Garden House Solicitors offers a franchise agreement review. Taking advice on the contents of a franchise agreement starts from £450 + VAT. It is a relatively quick process and can give you the peace of mind that you are not signing up to years of headaches later on.  

If you are considering entering into a franchise agreement or you are already involved in a franchise and need assistance you can telephone me on 01992 422128 or email

Tel: 01992 422 128

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

1 comment:

  1. Today, many people are looking forward to the idea of becoming franchisees, but what is essential is to become a successful franchise and this can be done only if you are prepared in advance and knows your goals. It is necessary that before signing any agreement you should read all the documents properly. A franchise agreement is there whether you are buying a franchise in any industry and it is one of the most important legal documents that are required when you buy a franchise. It is necessary that you and your franchisor should have good relations and thus it is necessary that you should get your agreement checked by a professional lawyer so, that there won’t be any hidden policies or pitfalls in the agreement.