Becoming a Franchisee: Legal Essentials Before You Invest

Becoming a franchisee offers the opportunity to run your own business with the support of an established brand. Franchising can deliver proven systems, training and ongoing operational guidance. However, despite the backing of a franchisor, you as the franchisee take on significant legal and financial commitments. Understanding the franchising legal essentials is vital before you sign any agreement or invest in a franchise system.

This guide explains the key areas of the franchise agreement, the main franchisee obligations, what to consider before committing, and how to deal with franchise disputes if problems arise.

Before you enter into any agreement, it is important to understand the commercial and legal implications of running a franchise. Key points to consider include:

Franchise systems usually involve both upfront and ongoing financial commitments. These often include:

Understanding the full range of franchise costs and fees is essential, as these directly affect profitability. These costs should be clearly stated in the franchise agreement.

The territory allocated to you is a crucial commercial protection. You should check whether:

Territorial overlap is one of the most common causes of franchisor franchisee disputes.

Most franchise systems impose strict rules to protect brand consistency. These can include:

These rules form part of your ongoing franchisee obligations and failure to comply can lead to penalties or termination.

Every franchisee needs to understand:

Your franchise resale and exit strategy should be considered before signing, not after.

Independent legal advice for franchisees is essential to help assess your rights and responsibilities before committing.

The franchise agreement is the most important document in the relationship. It sets out the legal terms between the franchisor and franchisee. These agreements are usually drafted in favour of the franchisor, so careful review is vital.

Check how long the contract lasts and whether you have any guaranteed rights to renew. Renewal fees and conditions can vary considerably.

Termination clauses set out the circumstances in which the franchisor can end the agreement. These usually include:

Understanding franchise termination clauses is essential because termination can have serious financial consequences.

The franchisor may promise initial training, marketing support, operational assistance or ongoing development programmes. You need to understand what is genuinely enforceable. Many disputes arise when franchisees believe promised support was not delivered.

This includes any non compete clause in franchise agreement. These restrictions can prevent you from operating a similar business in a defined area for a specific period after leaving the franchise. These clauses must be reasonable and proportionate.

A full franchise agreement review by a specialist solicitor will help you understand risks, negotiate changes where possible and make an informed decision.

Even strong franchise systems experience disagreements. Typical franchise disputes include:

Misrepresentation occurs when statements made during recruitment turn out to be inaccurate or misleading. This may relate to earnings projections, franchise territory rights, promised support or profitability.

Disputes often arise when training, marketing or operational support is not delivered as expected. This can affect the performance of the business and damage trust.

Unexpected fees, rising costs or unclear invoicing can cause tension. These issues should be set out clearly in the agreement, but disputes happen when the charges appear unfair or excessive.

If another franchisee begins operating in what you believe is your exclusive area, disputes often follow. This is why territorial rights must be reviewed carefully at the outset.

If another franchisee begins operating in what you believe is your exclusive area, disputes often follow. This is why territorial rights must be reviewed carefully at the outset.

The agreement will usually contain a dispute resolution procedure. It may require parties to engage in dialogue, negotiation or mediation before taking further steps.

Open communication often resolves disputes before they become serious. Keep written records of concerns and any promises made.

Independent advice helps you understand your position, assess risks and decide whether you have grounds for a claim. Legal advice is especially important in cases involving misrepresentation, breach of contract or unlawful termination.

Mediation is a confidential and cost effective way to resolve franchise disputes. It can help preserve the relationship and avoid the expense of litigation. Many franchise agreements encourage or require mediation before court proceedings.

Becoming a franchisee can be a rewarding way to enter the world of business ownership. Understanding your franchisee rights and responsibilities, carefully reviewing the franchise agreement and obtaining legal advice for franchisees from the outset can protect your investment and create the foundations for a successful long term partnership.

The Corporate and Commercial Team at Franklins Solicitors provides specialist advice on reviewing franchise agreements, handling franchise disputes and supporting franchisees throughout their business journey.