Specialist Fields

Franchise Law

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We assist businesses in all areas of Franchise Law

Franchise Law involves advising potential and established franchisors on how best to operate their franchises within the bounds of commercial and consumer legislation. Our team has developed the expertise required to advise franchisors on the protection of their intellectual property, exit or termination strategies and the drafting of cohesive agreements that give voice to the operation of the franchise itself. We also assist in the establishment and documentation of processes and procedures that provide the framework for a healthy franchise ecosystem.
Franchise Law is exciting – it allows for economic growth and promotes the development of new ideas and products. Being part of the team that brings these components together is a privilege.

- Robyn Hey

Laws and Regulations affecting Franchise Law

Franchise Law is largely governed by the common law of contract and the Consumer Protection Act, 2008. At its heart, a franchise is merely a contractual arrangement between a party who has established a business model (the franchisor) and a party who wishes to operate a business in line with such business model (the franchisee). However, the Consumer Protection Act has put measures in place to protect franchisees from being subject to unfair obligations being imposed on them in franchise arrangements and to ensure that they are provided with sufficient financial and other information before entering into a franchise agreement to allow them to assess the viability and suitability of the franchise model.

Legal Advice for Franchisors

The franchise model is a great model for growth but comes with some specific risks. The most obvious risk is the unavoidable exposure of a franchisor’s intellectual property to a franchisee. The law is unforgiving towards franchisors that try to protect their intellectual property rights using unacceptably broad restraint provisions. It is essential that franchisors understand their rights and protectable interests and that they don’t try to protect rights they don’t have. Franchisors must also make sure that their intellectual property has, where possible, been trademarked to assist in the clear protection of trade names, logos and the like. Finally, franchisors must take the time to document the systems that underpin their business model so that they are able to clearly articulate what their franchisees’ obligations are with regard to the running of the franchise.

Legal Advice for Franchisees

Franchisees are often swept up in the excitement of starting a business. It is essential that franchisees do a proper due diligence in respect of a franchise before concluding franchise agreements. Potential franchisees are entitled to a disclosure document that sets out, amongst other things, projections in respect of levels of potential sales, income, gross or net profits or other financial projections for the franchised business or franchises of a similar nature. This document must also set out the financial position of the franchisor. Disclosure documents should be properly scrutinsed by potential franchisees so they can make an objective assessment of the franchise model and whether it is likely that they will be able to run their franchise profitably.

FAQs

Common questions that franchisors or franchisees will be searching for answers to online
Understandably, franchisors are anxious to ensure that their brand and the aspects of the franchised business that make it unique are protected. Where possible, a franchisor needs to take steps to trademark its logos and trading name. The franchisor needs to be clear on what the ‘secret sauce’ of its franchise is. In other words, what makes the franchise unique. Once this question is answered, the franchise agreement can be tailored to properly protect the intellectual property and other protectable interests of the franchisor.
In terms of the Consumer Protection Act, 2008, a franchisor needs to make a disclosure document available to a franchisee. This document provides information both on the franchisor’s current and projected financial position and projections relating to the likely profitability of a franchise. This document needs to be gone through carefully so that the prospective franchisee can make an informed assessment of the viability of the franchise and the position of the franchisor itself.
A franchise agreement is subject to all the same rules and law as any other contract. A franchisor needs to ensure that its agreement is drafted in a way that clearly sets out its expectations of franchisees and what constitutes a breach of such an agreement. A franchisee on the other hand needs to be sure that it understands its obligations in terms of the agreement as well as what it can expect from the franchisor. A good dispute resolution clause (for example a mediation provision) will go a long way to making it easier to deal with disputes between the parties in a way that avoids the destruction of a relationship and the need for costly litigation.

Consistency is essential for brand success – as a result, franchisors typically require a high degree of control over franchisees. On the other hand, initiative and agility are essential for the success of a small business, so franchisees typically require a degree of freedom in operation. The franchise agreement must navigate a delicate route between these positions. 

- Sarah Lawrence

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