My HMO Journey: No rest for the wicked as we approach...
First, there are no regulations or laws that apply specifically to franchising so that means that you have to rely on legal principles and regulations that apply to all commercial contracts. Unlike many franchisees in other countries you are not in a privileged position in having additional protection so you do have to be cautious when entering into a franchise and you must take your time to investigate the franchise carefully.
Secondly, in order to investigate a franchisor and its franchise you must be provided with information. You need a full list of all of the franchisor’s franchisees and information about how long the franchisor has been trading, who are the important people in the franchise organisation, what is their history and whether there has been any litigation or disputes with franchisees. You would also expect the franchisor to provide you with a template business plan or cash flow forecast which, of course, will not be guaranteed in any way, but should be based (and you should ask the franchisor to confirm that they are based) on the actual performance of their franchisees. If any of this information is incorrect so that the franchisor has given you a particularly rosy picture in order to encourage you to enter into the franchise you may well have a misrepresentation claim against the franchisor but the name of the game is to ensure that you make the right decision based on hard facts rather than seeking to put yourself in a position to bring a claim against a franchisor!
Thirdly, the franchise agreement will be prepared by the franchisor’s lawyers to protect the franchisor. This is perfectly understandable because the franchisor has its brand and reputation to protect and clearly has to ensure, not only for its own benefit, but for the benefit of other franchisees that it can take action against a franchisee who is not doing what he should be. It is for this reason that franchise agreements are pretty “tough” as well as being lengthy and complex. Take your time to read the agreement and if there are elements that you do not understand you need to raise them with your franchise lawyer. Certainly have the agreement vetted by a knowledgeable franchise lawyer – not by the lawyer that did your divorce! You can obtain a list of affiliated lawyers from the British Franchise Association’s website.
Fourthly, not only will you be required to enter into a franchise agreement but you will also be bound by the franchisor’s operations manual which, as its name suggests, deals with operational issues. You will have to comply with the manual which you may not have seen and, in any event, the franchisor can alter it at any time. It has become common practice for franchisors to allow prospective franchisees to review the manual at the franchisor’s premises – in other words not to take it away – before a franchisee enters into the franchise. Whilst this process does not protect you from changes going forward it does, at least, enable you to satisfy yourself that the manual contains all of the elements that you were expecting and which would enable you to operate your franchise successfully. Important provisions such as how much you pay should not, of course, be set out in the manual because, as already indicated, the franchisor can change the manual.
Fifthly, because there are no specific provisions that protect franchisees you do have to adopt a cautious approach. Whilst very few UK franchisors tell untruths, you should proceed on the basis that that is a possibility and, as a result, ask searching questions and take your time.