Franchise Key United Kingdom - British Directory for Franchise and Master Franchise Opportunities

It is generally preferable for all people to have the same contracts within a franchise network. It makes it easier for franchisors to manage their networks and franchisees feel fairly treated.

However, this is not always the case because franchise networks are built up slowly and the matters of concern are often totally different to those when the franchise began. As a result, it is possible for there to be different contracts within the same franchise networks but this is not a legal problem.

Regarding the more specific question of fees and payments in general, entry fees often differ within a franchise as they correspond to different situations. The entry fee that has to be paid when a network has 100 sales outlets will not be the same as when it has 200 or 300 because the larger a network is, the stronger it is and so the more advantages it offers new franchisees. The entry fee may, therefore, be higher for those joining later.
 
As regards fees, attention must be paid to the amount of the fee and how it is calculated as everything depends on this.

• fees can be different if, for example, they are calculated according to the size (m²) of a sales outlet.

• they can also be different if they are calculated according to turnover.

• fees can also be calculated on a sliding scale: the bigger the premises, the lower the percentage rate or the greater the turnover, the lower the percentage rate.

What would be surprising is if a different fee is charged for the same service and the same type of business. If this is the case, then you should ask for this to be explained.

This question covers the problem of exclusive supply within networks.

It is possible to insist that all goods be purchased exclusively from the franchisor but the reasons behind this must be legitimate: the franchisor must be able to explain how it is in the network’s and the franchisees’ interest to be supplied only by the franchisor or by referenced suppliers. Priority deliveries, a better guarantee, lower prices or, in the restaurant industry, the traceability of beef, are all sufficient reasons for making an exclusive supply clause legitimate.

In principle, yes. Franchisees and franchisors are bound together by contract in which each undertakes to perform a certain number of services. If one of them fails to perform his contractual duties, he is liable to his partner under the contract.

As regards results, it depends on whether the contract provides for this or not. However the above principle applies here, too.

As far as being struck off is concerned, a contract may be terminated, if one party fails to fulfil its obligations.

The biggest risk is that the franchisor will terminate your franchise agreement as you have failed to fulfil your payment obligations.

Two questions that perhaps need answering are: why you are not paying your fee and why the franchisor has not issued you with notice to do so; perhaps you could discuss these matters with the franchisor.

They are, in principle, not normally handed over until the agreement has been signed as these documents are confidential.

However, it is possible that a certain part of the documents are handed over beforehand and the rest during the induction training course.

The answer to this is ‘not necessarily’ and it is certainly important to ask this essential question. The reasons for this are:

If the franchisor has not made any provisions regarding this in the contract and if the contract is signed with a company, then the purchaser automatically obtains the franchise agreement at the same time.

However, a serious franchisor would not wish just anyone (a competitor, a poor candidate, etc.) to purchase one of the franchised outlets in his network. To prevent this, he generally inserts two important clauses regarding resale into the franchise agreement:

1. a clause giving him preferential rights regarding resale (at the same price, of course)

2. another clause, termed ‘Intuitu Personae’, which specifies that the contract is signed in the capacity of the person of the franchisee and is therefore not transferable. This requires the franchisee selling his business to ask the franchisor to approve the potential buyer.

These provisions are important as they protect the name and prevent franchise re-sales leading to a deterioration in the value of the franchise network. This protects both the franchisor AND the remaining franchisees.

Yes, absolutely. A franchise contract can only be signed between independent businesses.

Franchisees are always independent entrepreneurs or independent businesses. This means that he/it finances his/its own activities, keeps the profits and bears all risks and responsibilities, etc.

Both a franchisor and a franchisee have the right to terminate a three-year contract after the three-year period is over. They are not obliged to renew or extend the contract nor must they justify their decision.

This is, however, only the case if the contract does not provide for automatic renewal, etc.

Franchisors can certainly require franchisees to pay a minimum monthly fee to cover the costs incurred from providing help, services, etc. 

This practice is not particularly wide-spread. However, in certain cases franchisees may not be working well, may lack energy or may be carrying out other business on the side.

Some franchisors require a fixed monthly sum plus a percentage as a means of guaranteeing a minimum income and reducing the level of fees on large turnovers.

It is probably less important for some networks than others but, in general, yes, it is important for the franchisee. The reasons for this are as follows:

If there is no territorial exclusivity, then another franchisee can set up in the same street as you, in the same shopping centre or in the same town.

It is, therefore, advisable to protect a franchisee’s profitability by agreeing not to set up another point of sale within a reasonable distance.

The difficulty is in knowing what a “reasonable” distance is. Franchisors must also be prevented from profiting from the increase in strength of their network by, for example, setting up their own business in a new shopping centre if the potential is there.

Who, for example, would have thought in 1970 that 750 McDonalds would be established in France, the country of good food? The exclusivity areas established at the time would probably have been too large.

This is why certain networks give priority to established franchisees to set up a second shop but not exclusivity.