We understand that buying a franchise and setting up your own business can be nerve-wracking as well as exciting.
MKB Law advises prospective and existing franchisees on all stages of the process from reviewing deposit and franchise agreements at the outset, negotiating the lease for your premises or dealing with day-to-day business and employment issues through to selling your business and, hopefully not, managing disputes arising with your franchisor.
Buying a Franchise
It is essential before buying a franchise (which can cost thousands of pounds) that prospective franchisees understand the terms of the franchise agreement that they’re being asked to sign up to with the franchisor. The agreement will set out key information including:
the Term, i.e. how many years the agreement will last
the fees payable to the franchisor
the expenses to be paid the franchisor which can sometimes be an unpleasant surprise over and above the fees
how the franchised business must be run on a daily basis
renewal rights (if any)
how the franchised business can be sold and the steps a franchisee will need to take to achieve a renewal or sale; and
the agreement will also list the restrictions on ex-franchisees after they have left the franchise or sold their business
A good agreement should also set out clearly what commitment you can expect for the franchisor.
To ensure you understand the key terms of the agreement MKB Law offers a service considering and reporting on franchise agreements at a fixed price. The report draws your attention to the main points in the agreement and their implications for you, indicates how the agreement compares with normal franchising practice, highlights any particularly onerous provisions and indicates points for you to raise with the franchisor.
Selling a Franchise
Most potential franchisees think only of acquiring a franchise from the franchisor. There can however be substantial advantages to buying a ‘second-hand’ franchise from an existing franchisee. MKB Law act for existing and potential franchisees in the legal process of franchise re-sales. We help them to understand the transaction and its risks.
Almost all franchise agreements give the franchisee the right to sell to a new franchisee approved by the franchisor and most franchisors will approve a sale provided they can train the purchaser to their standards and get their costs paid. Sometimes the buyer has to pay a new franchise fee; sometimes the seller pays a share of the sale price to the franchisor.
An existing franchised business may cost little more than a new franchise with the costs involved in setting up from scratch. It also has the advantage of a trading history, an existing client base, possibly a trained workforce and already depreciated assets. Unfortunately, however, it may not be all that it seems or could bring unexpected liabilities with it.
At MKB Law we can offer advice at every step of the transaction and help with all of the key aspects. Many of the issues that will arise are the same as in most business sales transactions and are described on our Business Sales page. The added complication is obtaining the consent of the franchisor and satisfying the buyer that there are no pre-existing breaches of the franchise agreement that may cause it to be terminated after the buyer has bought the business and parted with its money.
The property and real estate lawyers at MKB Law have extensive experience of dealing with property transactions with specific franchise arrangements to be catered for. Typical areas of advice are:
advising on a franchisor’s suggested method of providing the franchisee with a property and considering whether any alternative set up would be preferable
carrying out property due diligence
negotiating and reporting on property contracts
negotiating new leases and reporting on new/existing leases and how their obligations tie in with the franchise agreement
negotiating and reporting on licences permitting alterations to the property
negotiating and reporting on personal guarantees and rent deposits
dealing with the mechanics of legal completion of the property documents including any monies payable on completion
dealing with the Inland Revenue regarding payment of Stamp Duty Land Tax and completing Land Registry registrations
dealing on behalf of franchisees in situations of franchisor insolvency
advising on the legal implications of specific franchisee leasehold obligations, such as the requirements at rent review or the enforcement of a forfeiture clause