Disputing a Franchise Agreement

Entering into a franchise agreement is an exciting time. The promise of what is ahead with commercial returns for both the franchisor and franchisee leading both parties to enter into the relationship on an understandably enthusiastic basis. 

From such a positive start, the dynamics can change as the business relationship unfolds with disputes surrounding the following areas high on the agenda:-

• The relationship between franchisor (the person with the existing business and franchise) and franchisee (the person taking on the new franchise).
• Differences in expectations and commitment.
• Details provided prior to the franchise agreement being entered into around performance and returns not as anticipated.

The Franchise Agreement

As with any business there are always risks. Taking on a franchise is like any other business and whilst it may be of benefit to have a brand that is already established, there can still be challenges. 

Franchising itself is not regulated in the UK and as a result there are no regulations to guide both parties, meaning that any company can set up as a franchisor.

The most common type of franchise dispute is misrepresentation. This arises when the franchisee alleges that the franchisor was misleading with information or documentation provided to encourage them to enter into the franchise agreement. 

The franchisee has to show that in entering into the franchise agreement they relied upon statements of fact presented to them by the franchisor which later proved to be untrue or could not have been reasonably held.  Perhaps understandably in this category, those claims tend to focus on financial projections relating to the financial returns of operating the business and its running costs and expenses.

The franchise agreement itself can be drafted in a way to favour the franchisor with many obligations falling on the franchisee including a personal liability if the franchisee does not deliver on certain performance or financial requirements. Ensuring that the franchise agreement has been properly drafted and that the parties were aware of their own rights and obligations is critical, as it will enable both parties to operate their part of the agreement effectively and efficiently.

Preparing well in advance for managing the franchisee will assist the franchisor to support this new extension of its existing business.  The program of engaging with the start-up franchise from the outset through to being up and running is important and can head off any potential areas of conflict. This means ensuring that the right levels of support and training are in place.

Handling disputes

The majority of franchise agreements will include a clause as to how disputes between the parties should be handled. This is the first point of call if communication between the parties has broken down.

Mediation can be part of that process, or other facilitated face-to-face meetings, if both parties are represented by solicitors and their direct communications have been unsuccessful. Arbitration or litigation can lead to an assessed outcome for the parties however this can be lengthy and expensive.  Many court cases can take up to 2 years if they exceed small claims limit of £10,000 which makes mediation and its ability to resolve a dispute within a day at much less cost an attractive alternative.

Franklins Solicitors LLP have assisted many franchises in the following areas and just some examples are set out below:-

• Claims for misrepresentation over sale and performance figures provided during the peak pre-contract trial negotiations.
• Alleged breaches of a restrictive covenant by the franchisee following the termination of a franchise agreement
• Disputes over the terms and basis for terminating a franchise agreement
• Alleged misrepresentation and misstatements made at the outset which were relied upon and induced the franchise or to take out the franchise

Following an assessment of the legal position, we discuss with you the options and then best strategic approach in your dispute.

If you have the franchise dispute or have issues with a franchise oral franchisee relationship, please our Dispute Resolution team on 01604 828282 / 01908 660966 or email Litigation@franklins-sols.co.uk.