Key franchise agreement terms to be aware of – Part Three

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It is amazing how many people do not take advice on the terms of their franchise agreement prior to signing it. Often I hear that this was because they were told it was non-negotiable or the fees for a review seemed high. In my experience, regardless of whether the franchise agreement is negotiable or not, being fully aware of what your franchise agreement means in order to take a considered commercial decision and enter the agreement with your eyes open is invaluable.

It is therefore very important that you have at least read the franchise agreement ahead of your solicitor carrying out a review for you. It is very rare that a franchise review (either by report or otherwise) would comment on every single clause of the agreement and, as you will be expected to abide by the terms, you need to be clear on what all the terms are however unimportant certain things may seem.

This is the third of a series of articles for Workingmums.co.uk on some of the main clauses you need to be aware of in your franchise agreement. This article will cover training and the franchisee’s initial obligations.

Training

Every franchise agreement will include clauses relating to training. Training is imperative (and your initial fee includes payment for training) but can be more important to some franchisees than others (depending on the type of franchise, the skills involved and the franchisee’s work history) so it is important that you are clear on what training you can expect to receive from the franchisor. It is also very important to ensure that the franchise agreement reflects what you have been told you will receive in terms of training.

Training is designed to assist the franchisee in being able to understand how the business operates from launch and marketing the service or product right through to how to deal with day to day issues such as employees, case management systems, complaints and reporting requirements. As a franchisee you will be required to use the system that the franchisor has developed over time and this system is made up (in the main part) of how things are to be handled day to day in the operation of the business. Without adequate training in how to operate the system you could end up in difficulties.

In certain franchises there will be also be a requirement for emphasis to be put on training in how to use equipment and products such as in a chip repair business or a food/coffee franchise. If the franchise is based around skills you have never used before or are unsure of, you need to ensure you will be fully and effectively trained. Training in the majority of cases should be done face to face but we have recently seen some franchisors are offering training remotely by online systems – we are yet to hear how effective that is and we tend to favour a face-to-face approach.

Training is not only important in terms of you learning how to operate the franchise system but it can also be effective in weeding out franchisees who are not suitable to operate as a franchisee. The franchisee will be required, as a term of the franchise agreement, to pass the initial training programme. You may see in your franchise agreement a right for a franchisor to terminate the franchise agreement if you fail to pass the training – this is not uncommon and ensures uniformity of service across the franchise network.

Often the agreement will allow for you to pay an additional sum to re-take the training if you fail to meet the franchisor’s standards the first time. If there is a provision dealing with the effects of you failing to meet the franchisor’s standards during the initial training the agreement should also set out that the initial fee will be returned to you after a reasonable cost of the provision of the training has been deducted – this is something important to look out for.

It is always worthwhile checking whether the franchise agreement refers to how long the initial training programme will be and what is included – this can be in the definitions, the main body or most commonly in a schedule. You should look for clarity on the duration and what topics will be covered each day – it is unlikely you can learn all about how to operate your franchise in a day or half a day. A week or two weeks training should seem more realistic. If the agreement gives no clarity on these points, do not be afraid to ask for this to be included in a schedule or a side letter to ensure you can rely on what you are told.

If you pass the initial training the franchisor will be under an obligation to provide ongoing refresher or update training as it sees fit throughout the term. You will be required to meet the costs of ongoing training for yourself and your employees and it will be a requirement that you and your employees attend refresher/update training when required. The agreement will often require anyone who will be involved in the business to be trained by the franchisor before they can start work and again this will come at a cost to you but is entirely standard.

Franchisee’s initial obligations

The franchisee’s obligations in a franchise agreement are not always split into franchisee’s initial obligations and franchisee’s ongoing obligations like a franchisor’s are. However, it is generally quite straightforward to pick out the obligations that must be met prior to you getting going with the business. Depending on whether the business is home based or premises based the amount of initial obligations will vary.

Where there are premises the initial obligations of the franchisee will generally include securing suitable and approved premises, entering into a lease which is approved by the franchisor, having an approved fit out to make the premises meet the standards the franchisor expects and to make the premises identifiable with other franchised premises.

Other obligations which are common in franchises and which you can expect to see in your agreement (regardless of whether there are premises or not) will include commencing the business by a defined commencement date (which is very important) or within, say, three months from execution of the agreement, ensuring all staff to be involved in the business are trained and approved by the franchisor, ensuring any vehicles to be used are properly liveried, ensuring you have initial and sufficient stocks of products and materials, ensuring any licences or clearances to trade have been secured (such as FCA requirements or DBS checks), you are VAT registered, you have the correct software the franchisor requires you to use in place, you have allocated telephone and communication lines in place and ready to use, all signage/stationery is correct and in place as it should be, you have the required insurance referred to in the franchise agreement and that you have paid your initial fees to the franchisor.

I hope this article sheds some light on what to look out for in your franchise agreement. This is the third article of the series and there will still plenty of other terms and conditions in any franchise agreement that you need to read carefully. I would strongly advise anybody who is about to buy a franchise to get a specialist solicitor to review the agreement before signing. I personally have reviewed many agreements with many different outcomes from simply gaining clarity to actually walking away from a franchise that would have strangled them financially. I have also seen many franchisees become very successful as they knew exactly what to expect and what was expected of them.

If you are about to sign a franchise agreement and would like it fully reviewed please click here.

*Amy Leite is a solicitor at Pinney Talfourd Solicitors in Essex. She has specialised in franchise law for many years and shares her expert legal knowledge with Workingmums.co.uk readers who are looking into buying a franchise. This is Part Three of a series of articles on what to look out for before signing a franchise contract. You can find Part One here and Part Two here.  Articles such as this should not be seen as a substitute for taking legal advice on the terms of your franchise agreement. This is a tool to help you have a working knowledge of the terms of the franchise agreement before you have it reviewed and thereafter.





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