Franchising is, by now in 2025, a settled and well understood business arrangement, at least in terms of its principles and outline form, as a B2B relationship designed to enhance the territorial reach of franchisors involving for them some degree of cost control, while also enabling franchisees to enter a given market sector with a known and established brand and reliable levels of business support.
Franchising has enjoyed steady growth and increasing familiarity since its modern development in the early-to-mid 20th century, and is arguably particularly well suited to periods of economic uncertainty and market volatility, given its inherent risk buffers for both parties, so a brief discussion of some of its key risks and benefits may be timely and, for that reason, welcome.
There are of course many different types of franchising, but they share a range of common principles and in legal terms a recognisable set of core key terms warranting consideration irrespective of the type of franchise operation concerned. This brief article seeks to provide a brief and summary overview of some of those principles and terms.
It is worth bearing in mind as we proceed that in the UK, unlike the position in some other countries, there are no franchise-specific laws or regulatory requirements, although there is self-regulation of sorts via the British Franchise Association. This means that the legal issues around franchising are, in this country, grounded in either laws of wider application than just franchising, such as competition law or rules on unfair contract terms, or in common law.
Some of the key issues in franchising agreements and arrangements include (in no particular order) the following, which by no means constitute an exhaustive list of the sorts of issues warranting consideration:
IP Protection and Use Rights
Franchisors need to ensure they have their relevant IP rights properly protected not only in the territory where they are based and operate, but also in the territories they are looking to enter via franchise arrangements. This may seem obvious, but cannot be overstated as critical to proper franchise planning. They also need to be clear on what IP they intend to license to franchisees and how franchisees will be entitled to use it, as well as how to treat ownership of any new IP created by the franchisee during the course of the franchise relationship.
Franchisees for their part will be keen to be provided with documentation setting out the IP and know-how involved and what use of it is operationally expected and permitted. This is usually achieved by way of an operation manual or similar, to which franchisees will usually have only limited access before being legally bound into the relationship, as such a manual will undoubtedly contain commercially sensitive information such as the franchisor’s “special sauce”, and every franchisee is also a potential competitor of the franchisor.
Initial Term and Renewal Rights
Franchise agreements definitionally anticipate ongoing relationships. As such, they always operate for a clear set initial period but typically contemplate renewal conditions and rights, thereby enabling both parties to plan reasonable medium and longer-term aims. The initial term needs to be long enough to enable the franchisee a reasonable opportunity to develop its franchise business and (all going well) realise a decent return on investment.
For all these reasons, extension or renewal rights in franchise arrangements are usually constructed as conditional rights to franchisees to extend/renew, rather than having renewal as a matter for the franchisor to grant or withhold in their discretion.
Support Obligations
It is clearly in both parties’ interests for the franchise agreement to be clear on what support the franchisor will provide to the franchisee, both initially and as the relationship develops. Initially support, including training, will be needed to get the franchisee’s business operation up and running. What this may entail should be set out in the franchise agreement, so that each party understands as clearly as possible what is expected of it. This should include how associated costs will be borne and shared, for example initial training costs and both initial and ongoing travel, subsistence and accommodation costs.
Having said this support and training can easily be a fertile area for disagreement, even conflict, over who is responsible for what and whether they satisfactorily discharged their obligations, particularly if a franchise is underperforming financially. For this reason, franchisors are often (and reasonably) reluctant to agree highly specific and granular SLAs. Care needs to be taken in this area to minimise any potential for misunderstandings.
Fee Structures
The considerations outlined above in relation to support and training issues are of course but one consideration in ensuring clarity in terms of fee structures, which include a variety of operational and legal issues, increasingly involving how third party IP system and platform costs are to be shared, as franchise arrangements are of course not immune from being ever more dependent on third party licences, networks and arrangements involving a wide variety of matters such as CRM platforms, digital loyalty arrangements, use of mobile apps and other matters.
Obviously, franchise arrangements include a great variety of cost considerations, including such issues as initial fees payable by franchisees on becoming members of a franchise network, royalty payments for ongoing use of franchisor IP, marketing contributions to be made by each party for advertising (and how advertising spend will be deployed), fee restructurings on term renewals over time, and so forth.
Also worthy of mention in this context is the potentially thorny issue of how a franchise business is to be valued if, say, a franchisor is to have a ROFR (right of first refusal) on sale by a franchisee of their business operation during the term of the franchise. (Franchisee business sale rights and conditions are a whole separate issue of their own.)
Territory and Exclusivity
Every franchise agreement should always delineate as clearly as possible the territorial area within which the franchisee can conduct their operation, and whether (and to what extent) they are to have exclusivity in that territory. Geographical boundaries may be identified by whatever metric makes sense in the context concerned; examples include a stated country or county, an area of x kms radius around a central named point, a postcode, and so forth.
An interesting thought process worth thinking about in this context is considering how, over the lifetime of a franchise agreement, which will typically be several years even in its initial phase, both territorial scope and exclusivity may warrant revisiting in light of how commercial, demographic and consumer taste factors and variations may vary over time and potentially impact a franchise business, and whether and how best to incorporate flexibility regarding such issues into the franchise agreement, perhaps via mid-term reviews or named triggers.
Obviously enough, many further issues also warrant consideration and discussion with clients in the context of this fascinating area of business law: ensuring quality control for franchisors, consistency of operational procedures, promotional obligations, putting in place efficient and timely dispute resolution and cost review mechanisms, breach remedies and the nuclear option of termination rights, misrepresentation (another fertile area for disagreement), and others. This brief overview cannot be the occasion to explore these further areas, or to delve deeply into the issues already outlined above. But the writer’s hope is that this overview resonates positively with client experiences and provides food for thought. If it does so, it has achieved its purpose.
This article was written by Chris Gelber in the Commercial team.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
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