How to...Gain legal advice before taking up a franchise

Ed Savory, an Associate in Leathes Prior’s franchising team, provides some legal advice before taking up a franchise

If you are looking to take up a franchise then you may well be wondering whether or not you should take legal advice before signing the franchise agreement, or indeed any other legal documentation (for example, the deposit agreement). There are views on this subject which range from “you’d be mad not too given the level of investment you will be making and the fact that you will effectively be locked-in for a period of at least 5 years” to “lots of other franchise owners are operating perfectly satisfactorily and it is a take it or leave it deal anyway so save your money”.

The British Franchise Association (bfa) recommends you take legal advice and some franchisors actually insist that you do so in order to ensure that you are entering into the arrangement with a full understanding of your obligations and the consequences should you fail to meet them. If you are considering taking legal advice the purpose of this article is to provide you with some guidance on how to do so.

How do you find an expert franchise solicitor?
There really is little point instructing a solicitor to advise you if he or she has little or no experience of franchising. The simplest first step is to refer to the listed Professional Advisers on the British Franchise Association website (www.thebfa.org). Click on the “Members” tab and select “Professional Advisers”, you will be taken to another page where you then need to click on “Legal Advisers” on the left hand side. All the bfa affiliated legal advisers are listed and if you click on “View Full Details” you will find some useful information about each of them.

While all those persons listed on the bfa’s website are qualified to advise, you really want to find someone who is genuinely active within the market place and providing up to date advice to prospective franchise owners. Therefore, you should take some further steps as suggested below.

Ensure your solicitor understands the franchise
You should try to avoid taking advice from someone who does not understand the business in which you are looking to take a franchise. Franchises come in all shapes and sizes. A low-level investment man-and-a-van franchise, which is operated by a sole trader from home, is not the same as a high value premises based fast food outlet.

Those solicitors who advise franchisors and franchise owners will have the best understanding of being on both sides of the fence which means they are going to be in the best position to provide practical guidance and to negotiate any concessions on your behalf.

Does location matter?
If you are happy to have contact over the phone and via post and email then your franchise solicitor can be based anywhere in the UK. The advantage of taking advice outside of London and other major locations is that it will be cheaper. If, however, you are the type of person who likes to meet your adviser face to face then consider finding a solicitor who is conveniently located.

What services are being offered?
The standard way in which prospective franchise owners are advised is for the solicitor to review the franchise agreement and to provide a report and then talk it through with you in a short meeting or telephone call, so that you can address any issues with the franchisor.

However we provide more in the following:

Legal report (including some general introductory advice to the UK’s franchising sector)
Meeting (in person or on the telephone)
Company search on the franchisor company providing details of control and ownership and a copy of the latest filed accounts
Trademark search to check the franchisor owns and has the right to license the brand to its franchise owners
A copy of the bfa’s Code of Ethics (which you should carefully read to satisfy yourself that the franchisor has complied with its obligations regarding disclosure of information to you)

Initially you may only be thinking about a report on the franchise agreement but you may need advice on some or all of the following:

Your business structure - whether to operate the franchise as a sole trader, as a partnership, or through a limited company or a limited liability partnership (LLP)
Your premises – entering into a lease
Employment matters
Dispute resolution – in case you fall out with the franchisor

Some specialist franchise legal advisers are not able to offer all of these services. That does not mean you should not instruct them but clearly it may be in your interest to have one point of contact for all your legal issues.

Shop around
The franchise owner advisory market is competitive so you should contact a handful of solicitors. When contacting the solicitor you should ask for a fixed fee quote, which should include a consultation meeting or phone call to run through the legal report. You may be tempted to automatically choose the cheapest, but make sure you know what you are actually getting for your money and agree the scope of advice and the timescale.

Decide on someone you feel comfortable with
The final decision should be made on the basis that you feel confident in the individual, you like their manner and feel you can trust them. If in doubt, ask for some references from other franchise owners who they have recently advised.

When should you instruct a solicitor?
Invariably, prospective franchise owners leave it quite late and focus on the franchise agreement. By that time you may have already signed a confidentiality agreement and/or deposit agreement (also sometime referred to as the intent to proceed agreement or ITPA). I would recommend that you have a solicitor instructed before you enter into any legally binding agreement. The reality is that you are unlikely to want to incur costs before you are really serious. One tip I have is to double check that the deposit agreement contains a right to a full refund (which it should under the bfa’s Code of Ethics) before signing.

Selecting an expert who understands franchising and the business of the franchise you are looking to invest into and who is able to provide you will practical commercial advice will be worth the investment.