Franchising Comparative Guide

• Published date: 28 July 2021
• Subject Matter: Corporate/Commercial Law, Franchising
• Law Firm: Bird & Bird
• Author: Mr Mark Abell

1 Legal and enforcement framework

1.1 Which legislative and regulatory provisions govern franchising in your jurisdiction?

There are no franchise-specific laws or regulations in the United Kingdom. Franchising is regulated by general commercial law and competition law.

1.2 Do they apply to foreign franchisors entering your jurisdiction or only to domestic franchises?

They apply to both foreign and UK franchises.

1.3 Do any special regimes apply in specific sectors?

No.

1.4 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

As there are no franchise-specific laws, there are no bodies responsible for enforcing them. Competition law is enforced by Competition and Markets Authority.

1.5 What is the regulator's general approach in regulating the franchise sector?

Not applicable.

1.6 Are there any trade associations for the franchise sector? If so, what are the conditions for membership? What are the commercial implications of not being a member?

The British Franchise Association is the established trade association for franchising in the United Kingdom. It is a member of the European Franchising Association (EFA) and its Code of Ethics is based on that of the EFA.

2 Franchise market

2.1 How mature is the franchise sector in your jurisdiction?

It is very well established, dating back to the 1960s.

The latest British Franchise Association (BFA) and NatWest Survey (2018) states that the franchise sector contributes '17.2 billion to the UK economy and employs 710,000 people. It identifies personal services, hotel and catering, along with store retailing, as the biggest growth areas. Although this is now somewhat old data, the general trend seems to prevail.

The BFA figures do not include the number for traditionally non-franchise corporations that use franchising as a key part of their international strategy, such as Marks & Spencer; or the numerous independent schools that have used franchising structures to establish themselves abroad, such as Westminster, Wellington and Dulwich. The total contribution of franchising to the national economy is therefore probably significantly higher than the BFA/NatWest Survey suggests.

2.2 In which sectors is franchising most common?

Franchising is well established in the food and beverage, retail and hotel and leisure sectors. It is also well established in the service sector. In recent years, it has also been used in the healthcare and education sectors.

2.3 Who are the biggest and most successful franchisors in your jurisdiction? How are they typically structured?

All of the long-established franchise brands - such as McDonalds, Burger King, Domino's, Pizza Hut, Papa John's, Nando's, KFC and Costa - are well established in the United Kingdom. They are all successful and have a healthy market share.

Service franchisors - such as Neighborly, Chips Away and DynoRod - are also very successful.

The majority use a unit franchise approach. Multiple franchisees are common. Many of these have a portfolio of different franchise brands. Regional franchises and sub-franchises are not commonly used.

3 Franchising models

3.1 Is master franchising or the development model most common in your jurisdiction?

This depends on the nature of the business. Most foreign food and beverage and retail franchises tend to use a master franchise structure, although those that require significant investment (eg, TGI Fridays) tend to use a development model.

In hotel and leisure, the master franchise model is most common.

3.2 What other models of franchising are commonly used in your jurisdiction?

Multi-unit franchising and multi-unit multi-brand operators (MUMBOs) are common in the food and beverage sector in particular.

3.3 What are the potential advantages and disadvantages of these different models?

MUMBOs deliver great experience and expertise in the roll-out of franchised concepts. They have their own infrastructure which specialises in implementing and rolling out established franchise concepts in the United Kingdom. They often place a portfolio of brands in close proximity to each other and so increase their efficiency. The downside can be that they have significant bargaining power and are not solely focused on a single franchise brand.

3.4 What specific considerations should be borne in mind in the case of cross-border franchising into your jurisdiction?

The United Kingdom is a common law jurisdiction and so it is important that franchise agreements are drafted appropriately. Civil law franchise agreements are generally not appropriate and need a good deal of amendment before they are fit to use in the United Kingdom.

Scotland and Northern Ireland have slightly different legal systems.

4 Definitions and scope of application

4.1 How is 'franchising' defined in your jurisdiction?

There is no formal legal definition of a 'franchise' under English law.

4.2 What are the key requirements that apply to franchising? Is pre-contractual disclosure required? Is registration of documentation required? Are mandatory terms imposed?

Subject to the Trading Schemes Act mentioned below, there is no requirement for pre-contractual disclosure or for registration. There are no mandatory provisions that must be included in franchise agreements. Multi-level franchising is usually caught by the Trading Schemes Act. This requires a formal approach to the drafting of the agreement and various warnings must be included. This requirement is generally avoided by requiring all franchisees to be registered for value added tax - an exemption that is made available by a statutory instrument issued under the act.

4.3 What specific activities (if any) are prohibited under the franchising laws and regulations? What are the potential consequences of breach?

No answer submitted for this question.

5 Initial steps

5.1 Are there any restrictions on foreign franchisors entering your jurisdiction?

No.

5.2 What is the most common structure adopted by foreign franchisors entering your jurisdiction?

Master franchise and development structures.

5.3 What requirements or restrictions apply with regard to the selection and recruitment of franchisees?

None.

5.4 Are franchisees subject to any legal obligations when purchasing a franchise?

No.

6 Disclosure and due diligence

6.1 What pre-contractual disclosure requirements apply to franchisors in your jurisdiction?

None.

6.2 What formal, substantive and procedural requirements apply with regard to the disclosure document in your jurisdiction?

None.

6.3 What pre-contractual disclosure requirements apply to franchisees in your jurisdiction?

None.

6.4 What are the consequences of any breach of the pre-contractual disclosure requirements?

Not applicable, but misrepresentations can lead to the franchisee having the right to withdraw from the franchise agreement in certain circumstances.

6.5 What other due diligence should the parties undertake before entering into a franchise agreement?

None is required by law.

6.6 Are there any restrictions imposed upon franchise brokers in your jurisdiction?

No.

7 Franchise agreement

7.1 What formal, substantive and procedural requirements apply with regard to the franchise agreement in your jurisdiction? Are there any mandatory terms? What terms are typically included in the agreement?

None.

7.2 Do any specific requirements apply regarding the governing law or jurisdiction of the franchise agreement?

No.

7.3 Does the franchisor have any mandatory rights and obligations under the franchise agreement?

No.

7.4 Does the franchisee have any mandatory rights and obligations under the franchise agreement

No.

7.5 What restrictions can the franchisor impose on the franchisee's activities under the terms of the franchise agreement (eg, purchasing requirements, non-compete obligations, exclusivity, price control)?

Subject to competition law issues, there are no such restrictions.

7.6 Is there a duty of good faith imposed upon the franchisor and franchisee?

Although there is no...