Enter into a franchise agreement with care The conditions of a standard franchise agreement are usually very one sidedin favour of the franchisor NEIL FALCONER, INTELLECTUAL PROPERTY SOLICITOR, THORNTONS

Some franchisees can be surprised at restrictions on their activities

Franchising is a business arrangement that allows a franchisee to buy into the business model and brand of an established company.

The benefit of franchising is simple: the franchisee gets the support and expertise of the franchisor and can follow a business model that has already been proven to work.

This can be a comforting proposition for those looking to enter the business world for the first time, or even for more experienced entrepreneurs looking to enter an unfamiliar market.

Before entering into a franchise the franchisee will be required to sign a franchise agreement provided by the franchisor. Franchise agreements will vary to an extent but they usually contain common themes.

While the franchisee will be allowed to exploit the brand, the franchisor will need to exercise control over the franchisee in order to protect it.

After all, the business of a franchisor is not just the supply of the goods or services it provides, but also the brand it provides them under.

When engaging with franchisees it is the brand that the franchisor is selling.

Most franchise agreements will contain minimum targets that the franchisee will need to meet in order to retain their franchise.

The agreement will also detail what the franchisee must and must not do and under what conditions the franchisor can terminate the agreement and take control of the franchisee’s business.

The conditions of a standard franchise agreement are usually very one-sided in favour of the franchisor and often result in a relationship more akin to an agent working on commission than the franchisee controlling their own business.

As franchises are often marketed as an opportunity for an individual to own and run their own business, the level of control a franchisor has over the franchisee’s business can often come as a surprise to the franchisee.

When considering entering into a franchise it is important to consider what you are buying – the brand of the franchisor.

You should consider the reputation of that brand and what the franchisor can offer you that you could not develop independently.

If the franchisor is not a household name and it is effectively only offering business advice and a business model, consider if this advice could be obtained elsewhere without you having to be restricted by the obligations of a franchise agreement.

Government organisations such as Scottish Enterprise and Business Gateway could support you with this.

There are some franchises that are strong brands with a large client base.

Well-known fast-food restaurants and coffee shops would fall into this category.

In such cases a franchisee would not be able to readily recreate the brand reputation these household names enjoy.

In these circumstances a franchisee may consider the benefit of the brand reputation to outweigh the restrictions of the franchise agreement.

We would always recommend that you take legal advice prior to entering a franchise agreement to ensure you are clear on the terms of the contract.

Franchisees should take the time to understand what they are getting into.