Franchise agreements — key considerations for franchisors & franchisees

Historically in the UK, franchising has been viewed as a flexible, contract-driven business model that allows businesses to expand under a proven brand while sharing some of the commercial risks of growth with franchisees — but that all might be changing.

The recent Vodafone case has raised important questions about the legal status of certain franchise relationships and whether some franchisees could benefit from protections that have traditionally been associated with commercial agents rather than franchise operators.

While we await judgment in this case, both franchisors and franchisees should take the opportunity to review their existing arrangements and carefully consider how new franchise agreements are structured.

Here, Samantha Thompson and Sara Ludlam from our commercial team outline some of the key commercial and legal considerations for parties considering a franchise arrangement.

Key considerations for franchisors

To reduce risk and future-proof your model, franchisors will need to think about the following points:

1. Consider whether your model could be challenged 

In light of the Vodafone case, you should review whether your proposed model falls within any legal frameworks beyond pure franchising, such as the Commercial Agents Regulations. Care should be taken to ensure that, in practice, the structure doesn’t inadvertently create the characteristics of an agency relationship. Keep an eye on the outcome of the case and implement any changes that may be necessary once the judgment has been delivered. 

2. Invest in robust contract drafting 

As with all business arrangements, a well-drafted agreement is central to risk management. As a franchisor, you should ensure that contracts include robust entire agreement clauses, non-reliance statements (i.e. a statement that the franchisee acknowledges and agrees that when entering into the agreement, it hasn’t relied on any statements, assurances, forecasts, etc. that aren’t expressly set out in the agreement) and clearly defined provisions governing the exercise of discretion. Discretion as a provision shouldn’t only be widely drafted but also capable of being exercised rationally and transparently to avoid any challenges. 

3. Balance brand control with franchisee independence

There’s a need to carefully balance maintaining brand consistency with allowing franchisees sufficient independence. While franchisors should control the use of their intellectual property to protect their brand, it’s important that such prescriptive controls aren’t extended to the wider business operations. By imposing overly prescriptive controls — particularly around pricing, customer engagement and general business operations — you run the risk of the arrangement being challenged on failure to uphold the duty of good faith. As such, a measured approach should be implemented to mitigate this. 

4. Treat franchisees as long-term partners

A franchise relationship should be approached as a long-term partnership rather than a purely contractual arrangement. This can be achieved by maintaining clear records of decision-making processes to demonstrate that actions have been taken rationally and fairly. You should be conscious that their conduct may be assessed in accordance with good faith in any future disputes. 

Key considerations for franchisees 

Before entering a franchise agreement, franchisees should carefully consider the following:

1. Establish whether franchising is the right business model for you

A franchise offers the opportunity to operate under an established brand and proven business system, which often reduces some of the risks and worries around starting a business from scratch. However, one implication is that as a franchisee you’ll build goodwill in the franchisor’s brand rather than creating one of your own. It’s therefore important to understand from the outset that while a successful franchise can be profitable for you, the underlying intellectual property, reputation and customer recognition will remain with the franchisor. 

2.  Carry out commercial due diligence 

Approach financial projections with caution and treat them as illustrative rather than guaranteed outcomes. It’s sensible to perform stress tests on the proposed business to see whether it could withstand worst-case scenarios. We also recommend speaking with current and former franchisees to understand their real-world experience and identify any issues that may not be apparent at the outset. 

3. Understand the legal risks

It’s important to carefully review the franchise agreement. While it’s rare that a franchisor will permit any amendments to their standard franchise agreement, you should fully understand the commercial and legal risks that you’re taking on when you sign it. Often you have to give personal guarantees in addition to your company providing warranties and indemnities.

Also consider whether (or how easily) the franchisor can alter the commercial terms, including potential changes that might impact the sustainability of the business.

4. Assess the level of operational control 

Franchise arrangements often involve a high degree of control by the franchisor. This means that it’s important to assess the extent of any pricing restrictions, supplier requirements and operational mandates — and what those mean in practice. You’ll have a lot of reading to do, as a lot of this information is often set out in the operations manual and not just the franchise agreement.

5. Examine the financial structure

You should question how the financial model of the franchise works in practice and whether fees are fixed or linked to turnover or profit. If linked to turnover, this will have a more deleterious and disproportionate effect on your profit when times are tough than it if it’s linked to profit. 

6. Plan your exit before you enter

While leaving a franchise may not be the first thought when entering into the arrangement, it’s important to understand the exit arrangements. This includes understanding what you can take with you on termination (not the goodwill or customers) and how you’ll earn a living. Normally, you’ll be subject to post-termination restrictions that prevent you from operating an identical or similar business in the same neighbourhood for a fixed period of time. 

Practical takeaways

Franchising is no longer viewed purely as a private contractual arrangement — it’s increasingly treated as a structured, interdependent commercial relationship attracting increased judicial scrutiny. Courts are willing to look beyond the label ‘franchise’ and relationships are being judged not just by what the contract says but by how the relationship operates in practice.

How we can help

Our commercial team supports both franchisors and franchisees across the full lifecycle of franchise arrangements — from structuring and drafting through to preparing brand guidelines and dispute resolution.

If you need assistance with designing agreements that balance control with resilience, talk to us by emailing hello@brabners.com, calling 0333 004 4488 or completing our contact form.