A franchise agreement is a binding legal contract that defines your relationship with the franchisor. It's lengthy, detailed, and often heavily weighted in the franchisor's favour. Most franchisees don't have it reviewed by a solicitor before signing—and that's a mistake.
1. The fees: initial, ongoing, and hidden
Every fee should be stated clearly with the calculation method and payment schedule. Initial franchise fees (£5,000-£50,000), ongoing royalties (5-10% of gross revenue), marketing levies (1-3% of revenue), training fees, technology/system fees, and renewal fees (£2,000-£5,000). Don't assume anything.
2. Term and renewal: are you locked in?
Typical terms are 5 or 10 years. Key question: what happens at the end? Automatic renewal (you're not stuck), renewal at franchisor's discretion (risky—after 10 years the franchisor can refuse), or fixed term with no renewal (avoid unless the franchisor guarantees a buyout).
3. Obligations and 4. Termination
Operating standards, sourcing requirements, technology compliance, reporting and audit, training requirements, and insurance are all typical obligations. Watch for termination clauses: does the franchisor need good reason to terminate, or can they terminate at will?
5. Restrictive covenants
Non-compete restrictions after the franchise ends might be unreasonably broad. Negotiate duration (2 years is standard), geography (5 miles is typical), and definition of "competing business."
Before you sign
Take the franchise agreement to a solicitor with franchise experience. The cost (typically £500-£1,500) is a small investment compared to the risk. Many franchisors will negotiate minor changes to the agreement.
See a sample report of how we analyze franchise agreements to identify risks and protect franchisees.