Franchising in UK
What do I need to be aware of?
Unlike in the USA, Australia or Canada, there is no franchise specific legislation in the United Kingdom. However, franchise agreements in the UK, are subject to the general common law and legislation. As a result UK franchise agreements are often quite lengthy, because they are drafted to cater for all eventualities.
The absence of franchise specific legislation provides the British Franchise Association (“BFA”) with an important role in the regulation of franchising. Membership is voluntary and subject to annual renewal. The BFA requires all its members, (franchisors, affiliates and consultants), to adhere to a Code of Ethics (“Code”). The Code requires a franchisor to have successfully operated a business concept, with success for a reasonable period of time, to be the owner or have the legal right to use the trade name, trademarks and to offer assistance to the franchisee throughout the relationship. It also requires the franchisor to provide advance disclosure of certain information and both parties to exercise fairness in their dealing with one another. This is so, despite there being no general obligation in the UK to exercise good faith in contractual relations.
Technically franchisors only have to comply with the Code if they are members of the BFA. In a recent case, the High Court held that compliance with the Code is a good indicator of what is regarded as good practice in franchising.
Competition law regulates Franchise Agreements because they have the potential to affect competition if they contain territorial restrictions, pricing obligations or non-compete requirements as most Franchise Agreements do.
Most franchise agreements contain exemption clauses, which seek to limit or exclude the franchisor’s liability for pre contractual statements or other matters. UCTA applies to any clause where a franchisor seeks to limit its liability in any way. Franchise agreements are likely to be treated as standard form documents therefore any exclusion clauses will only be valid in so far as they are fair and reasonable.
The franchisor’s trade name and trademarks, confidential information and know-how are essential elements of what is provided to the franchisee. Trademarks are registrable in the UK under the Trade Marks Act 1994. Copyright does not require registration – it simply arises!
The Data Protection Act (“DPA”) governs the processing of personal information held on living and identifiable individuals. It applies to the ‘processing’ of ‘personal data’. A breach of data protection laws can lead to criminal as well as civil liability. All the obligations under the DPA fall upon the ‘data controller’. In the franchising context, franchisors and franchisees are both usually data controllers, although franchisees are sometimes data processors rather than data controllers. Further, there are restrictions on “exporting” personal data outside the European Union.
The Trading Schemes Act (“TSA”) was introduced to regulate pyramid selling schemes but was badly drafted and as a result regulates franchising unless the franchisor and all franchisees are VAT registered, or unless the franchise network is “a single tier” network – in other words all franchisees at the same level. Generally, franchisors try hard to avoid having to comply with the “tough” requirements of the TSA!
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