If you're considering buying a franchise or starting a business using an established brand, understanding franchise agreements is essential. A franchise agreement is the legal contract between the franchisor (the business owner) and the franchisee (you, the person buying into the business). It lays out the rules, responsibilities, and expectations for both parties, ensuring that the franchise runs smoothly. In this guide, we’ll break down what franchise agreements are, how they work, and what you need to know before signing one. Let’s dive in.
What are franchises?
A franchise is a business model where an individual or company (the franchisee) is given permission to run a business under an established brand (the franchisor). For example, major brands like McDonald's, Subway, or Costa Coffee operate under a franchise system. Instead of setting up a brand-new business from scratch, franchisees benefit from a recognised name, proven business model, and ongoing support. In return, they typically pay fees and agree to follow the franchisor’s rules and guidelines.
What is a franchise agreement?
A franchise agreement is the official contract between the franchisor and the franchisee. It defines everything about the business relationship, including:
What the franchisee can and cannot do (e.g. following the brand’s operational standards)
How long the agreement lasts (often around five years with renewal options)
How much the franchisee must pay (initial fees, royalties, and marketing contributions)
What support the franchisor provides (training, business guidance, and marketing)
This agreement ensures that both parties are on the same page, protecting the franchisor’s brand while giving the franchisee clear guidance on running the business.
How do franchise agreements work?
Once a franchise agreement is signed, the franchisee is officially part of the franchise network. This usually means:
The franchisee can use the brand’s name, trademarks, and business model.
The franchisor provides training, support, and guidance to help the franchisee succeed.
The franchisee pays fees to the franchisor – this may include an upfront cost and ongoing royalties (a percentage of sales).
The franchisee must follow the rules set out in the agreement, ensuring consistency across all franchise locations.
The agreement has a fixed term (e.g. 5-10 years), after which it may be renewed or ended.
Think of it as a business partnership where you get to run your own location but still follow the guidelines of a larger, well-known brand.
What are the key elements of a franchise agreement?
A franchise agreement typically includes the following key sections:
1. Business rights
What exactly you’re allowed to do under the franchise name (e.g. using the brand, selling certain products).
2. Territory
Where you can operate your franchise (e.g. a specific town or city).
Whether you have exclusive rights in that area.
3. Fees and payments
The initial franchise fee (the cost to buy into the franchise).
Ongoing royalty fees (usually a percentage of your revenue).
Marketing and advertising contributions.
4. Training and support
What kind of training the franchisor will provide.
How much business support you’ll get.
5. Operating rules
Standards and procedures you must follow.
Branding, customer service, and product/service guidelines.
6. Marketing and advertising
The marketing strategy and who is responsible for what.
How much you need to contribute to national or local advertising funds.
7. Intellectual property
How you can use the franchisor’s trademarks, branding, and materials.
8. Duration and renewal
How long your agreement lasts.
Whether you can renew after it expires.
9. Exit strategy
What happens if you want to leave or sell the business.
Grounds for termination by the franchisor.
Why are franchise agreements important?
Franchise agreements are crucial because they protect both the franchisor and the franchisee.
For the franchisor, the agreement ensures that every franchise location maintains brand consistency, protecting their reputation.
For the franchisee, it provides a clear structure, outlining what support they will receive and what is expected of them.
Having everything in writing helps prevent disputes and makes sure everyone understands their rights and responsibilities from the start.
Can you get out of a franchise agreement?
Leaving a franchise before the contract ends isn’t always easy, but it is possible. Here are some common ways:
Agreement expiry: You simply don’t renew when the contract term ends.
Selling the franchise: You may be able to sell your business to another approved franchisee.
Termination by agreement: In some cases, the franchisor may allow you to exit early.
Breach of contract: If either party breaks the agreement, this can lead to termination (but this can have legal consequences).
If you’re considering leaving a franchise early, it’s important to get legal advice to understand your options.
Do you need a solicitor for a franchise agreement?
Yes, it’s highly recommended. Franchise agreements are legally binding contracts, and once you sign, you are committed.
A franchise solicitor can:
Explain the contract in plain English.
Identify any risks or unfair clauses.
Negotiate terms (where possible).
Help you exit if things don’t go as planned.
Getting professional advice before signing can save you a lot of stress, money, and potential legal trouble in the long run.
FAQ
What is the typical length of a franchise agreement?
Most UK franchise agreements last five years, but some can be 10 years or longer.
Are franchise agreements regulated by UK law?
There is no specific franchise law in the UK. However, franchise agreements are covered under general contract law, and the British Franchise Association (BFA) sets ethical franchising standards.
Can you negotiate a franchise agreement?
It depends. Some franchisors don’t allow much flexibility, but you may be able to negotiate certain terms, such as fees or renewal conditions.
What happens if you break a franchise agreement?
Breaking the agreement can lead to financial penalties or even legal action. Always check the termination clauses before signing.
Final thoughts
A franchise agreement is one of the most important documents in franchising. It sets out the rules, responsibilities, and expectations for both the franchisor and the franchisee, ensuring a smooth and successful business relationship.
Before signing, make sure you fully understand the contract, seek legal advice, and know exactly what you’re committing to. A well-structured agreement can be the foundation of a profitable and rewarding business.
👉Looking for legal advice? Get in touch today for a free, fixed-fee quote and to see how our corporate solicitors can help.
