The franchise legal stages

When buying a franchise there are several franchise legal stages you need to go through. Before signing any franchise agreement or other franchise legal documents, it is vital that you seek legal advice from a solicitor who specialises in franchising.

It is no use using the same solicitor you used when buying your house as though they may be very good at what they do, they are not franchise legal experts.

Stage 1 - Many franchisors at the interview stage will ask you to sign a confidential agreement. This allows them to give you confidential information about their business operation and seeks to prevent you from disclosing this information to anyone else. It is normal practice for a franchisor who is disclosing confidential information to ask you to sign this. 

Stage 2 - You may be asked to enter into a deposit agreement which will require you to pay a deposit to the franchisor. Please note that not all deposits are refundable and so if you decide not go ahead with buying the franchise you may not receive your deposit back. You should always ask if the deposit is refundable. If not, you need to be certain that you are serious about the franchise.

Stage 3 - Obtain a copy of the franchise agreement from the franchisor. This is the legal franchise document that outlines the obligations of both the franchisee and the franchisor; it protects the interests of all parties involved.

Stage 4 - As the franchise agreement is weighted in favour of the franchisor and will not be changed by the franchisor, it is vital that you ask a franchise solicitor to check the agreement for you. You should only use a solicitor who specialises in franchising as they will have checked through hundreds of agreements and so whilst it cannot be changed, they will have the experience and knowledge to highlight to you those areas of which you need to be aware of.  They may also advise you to ask for a side letter if appropriate. A normal solicitor may not do this.

Stage 5 - If the franchise is premises based, you should also seek legal advice when looking to buy/rent premises.

Stage 6 - Finally, for the franchise to be granted, you and the franchisor both need to sign the franchise agreement.

© Manzoor G.K. Ishani All rights reserved

Manzoor Ishani is a Senior Consultant Solicitor with Sherrards (Solicitors), a commercial practice advising franchisors and franchisees in the UK and internationally. He has specialised in franchising for more than 30 years and is a former member of the Legal Committee of the British Franchise Association and is co-author of “Franchising in the UK”, “Franchising in Europe” and “Franchising in Canada”, and has helped UK companies franchise into more than 32 countries.