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Franchising is a business model that has gained significant popularity in the UK. The franchise model enables business owners to expand by allowing individuals to operate their businesses under their established brand. However, franchising can be complex. Understanding the legal intricacies of franchising is crucial knowledge for any franchisor. This article explains the definition of franchising in the UK. It also breaks down key terms that business owners often use when discussing this business expansion method.
Franchising in the UK: The Legal Definition
Franchising is an arrangement where one party (the franchisor) grants another party (the franchisee) the right to operate a business using the franchisor’s brand, trade marks, and business model. The franchisee typically pays the franchisor an initial fee and ongoing royalties in exchange for these rights and the franchisor’s support.
Unlike some other countries, the UK does not have laws that exclusively govern the relationship between franchisors and franchisees. Instead, franchise agreements are the primary instrument that governs these relationships. The franchise agreement is a legally binding contract that outlines the rights and obligations of both parties.
Due to the absence of franchising-specific legislation, you must rely on a well-drafted franchise agreement to protect your interests and ensure smooth operations across your network. The franchise agreement should include details such as:
- fees;
- territory rights;
- the contract’s duration;
- dispute resolution mechanisms; and
- your and your franchisees’ rights and obligations.
As a prospective franchisor, it is best practice to seek legal advice about your franchise agreement. A lawyer can help you draft this critical contract to ensure a solid legal basis for your franchise relationships.
This handbook covers all the essential topics you need to know about franchising your business.
Explaining Key Franchising Terms
Understanding the industry’s key terms is essential for fully understanding the franchising model. The following table outlines these terms.
| Key Term | Explanation |
| Initial franchise fee | The initial fee is the upfront payment the franchisee makes to you for the right to access your brand, systems and support. This fee typically covers the cost of initial training, access to your systems and intellectual property, and franchise location set-up costs. |
| Royalty fees | Royalty fees are the ongoing payments the franchisee makes. Usually, this is a fixed portion of their income. These fees are a franchisor’s primary source of revenue from the franchise relationship. They will cover ongoing support provisions, brand development efforts, and services you provide to your franchisees. |
| Marketing contribution | Marketing contributions are another form of ongoing fees. Franchisees often contribute to a marketing fund, which you can use to develop marketing campaigns and drive brand awareness. It is best practice to be transparent with your franchisees about your use of the marketing fund. |
| Exclusive territory | A franchisee’s territory is where they have the right to operate. Some franchisors grant exclusive territory rights, which means that the franchisee is the only franchisee in your brand that can operate within that area. In the franchise agreement, you will specify whether the franchisee’s territory is exclusive or non-exclusive. |
| Disclosure | Disclosure refers to sharing information about your brand and a franchise opportunity with prospective franchisees. While completing a prescribed franchise disclosure document is not a legal requirement in the UK, some franchisors voluntarily provide comprehensive disclosure. It is good practice to provide a disclosure document that outlines aspects such as financial performance and whether there have been any legal disputes involving your franchise. This disclosure can help prospective franchisees make an informed decision. |
| Franchisee support | Support provisions are the services and assistance you provide to your franchisees. Support typically includes training, marketing assistance, operational guidance and ongoing advice. You will outline the scope of support in the franchise agreement. |
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Key Takeaways
Franchising in the UK operates within a complex legal framework. As a franchisor, you rely on a well-drafted franchise agreement to protect your interests and must comply with the relevant business laws. While the lack of franchising-specific legislation in the UK can offer flexibility, it places greater emphasis on ensuring your franchise agreements are robust and legally compliant.
If you want legal advice about franchising your business, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
Frequently Asked Questions
No, general business law, including contract, intellectual property, and competition law, governs franchising in the UK. The specific rules relevant to your franchise can depend on its industry and business model.
The franchise agreement should include details such as fees, territory rights, the contract’s duration, dispute resolution, and your and your franchisees’ rights and obligations.
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