What is a Franchise Dispute and how should it be handled?

Entering into a Franchise Agreement is an exciting time. The promise of what is ahead with commercial returns for both the Franchisor and Franchisee lead both parties to enter into the relationship on an understandably enthusiastic basis.  From such a positive start, dynamics can however change as the business relationship unfolds with disputes surrounding the following areas high on the agenda:-

• Strained relationships between Franchisor and Franchisee
• Differences in expectations and commitment
• Allegations of misrepresentation
• Performance and financial returns not as anticipated.
• Disagreements over location and allotted areas

The Franchise Agreements

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 the brand awareness of an established business model to seek a head start, 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 one of misrepresentation. This arises when the Franchisee alleges that the Franchisor provided misleading information to encourage the Franchisee 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 was not a view that could be reasonably upheld. Perhaps understandably in this category, most 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 is often drafted in a way to favour the Franchisor with many obligations falling on the Franchisee including Personal Liability if the franchise does not deliver on certain performance criteria. Ensuring that the Franchise Agreement has been properly drafted and that the parties are aware of their own rights and obligations is critical as it will enable everyone to work together and co-operate with each other effectively and efficiently.

Preparing well in advance for managing a franchise 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 established part of the Franchise Group 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 port of call if the communication between the parties to reach an understanding and commercial solution has not been successful.

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. Litigation can of course lead to an assessed outcome however not without often a lengthy and expensive Court process.  Many Court cases can take over a year if they exceed a 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 years of experience in franchise disputes.

Just a handful of examples are set out below:-

• Claims for fraudulent and negligent misrepresentation over sale and performance figures provided during the pre-contract negotiations;
• Alleged breaches of a restrictive covenant by franchisees following the termination of a Franchise Agreement;
• Disputes over the terms and the basis for terminating a Franchise Agreement
• Alleged misstatements made at the outset which were relied upon and induced a Franchisor to take out the Franchise
• The assessment of sums due to the Franchisor under the Franchise Agreement
• Negotiations for further training and support for a Franchisee

Following the assessment of each legal position, we assisted the parties decide upon their resolution strategy and represented their interests. Occasionally it was necessary to take court action although in most cases the matters were settled following negotiation.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk