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Why keeping your franchise agreement up to date is essential, Jonathan Chadd explains
It is a commonly accepted tenet of franchising that the franchise agreement should be in a standard form for each franchisee so as to ensure uniformity across the franchise network. Whilst this is of course sound advice it does not, however, mean that the franchise agreement should not be regularly reviewed to ensure that it accurately reflects the business system as it has developed over time.
Most importantly the agreement should also be reviewed and, where necessary, amended to reflect changes in legislation - not least the infamous EU Block Exemption, the latest revision of which became law in June of this year.
That legislation alone, resulted in most well advised franchisors undertaking a careful review of their existing agreements in order to determine the best policy for dealing not only with any changes required to their standard form agreement for new franchisees but also with any changes required to those agreements already issued to franchisees, which will need to be addressed by no later than June 2011.
The agreement between franchisor and franchisee is not solely recorded in the franchise agreement but also in the franchisor's operations manual since the franchisee is required to comply with its provisions.
The manual, which contains full details of the way in which the business is to be run, provides the franchisor with a flexible means of introducing change to the network which can be affected instantly by the simple issue to all franchisees of new manual sections or inserts. These can impose new or amended procedures, restrictions or obligations upon the franchisee provided those are not inconsistent with the terms of the franchise agreement itself.
Franchisors undertake the task of issuing franchise agreements to their new franchisees frequently fail to undertake regular reviews of the agreement which, as a result, can become badly out of date causing serious problems when the franchisor then seeks to enforce restrictions which at worst have become illegal or may, at best, be un-enforceable.
Where franchisors delegate the task of issuing agreements to their specialist franchise lawyers, there is an ideal (and highly cost effective) opportunity for the agreement to be reviewed each time a franchise is granted and thus kept up to date on a regular basis. A good lawyer will be aware of any changes in relevant legislation and the franchisor will be aware of any changes that have occurred within the business. Together they can ensure that important changes in the law are immediately reflected in the agreement upon the issue of the next franchise and undertake at least an annual review of the agreement as a whole to ensure it still reflects the franchisor's business system and its broader requirements for the business going forward.
Well-drafted franchise agreements evolve over time. This provides important reassurance to the mature franchisee that is likely to be familiar with the terms of the agreement. Infrequent but radical re-working of the agreement when defects in it are suddenly spotted, may cause difficulties for the franchisor with franchisees reluctant to accept substantive changes on renewal and suspicious that the franchisor is trying to erode their rights without justification. This can damage both the franchisor and, more seriously, its network.
If, as a franchisor, you have not addressed this issue for a year or more then it is overdue for attention. Far better to spot the changes required early and address them promptly than to assume all is well and suddenly find that a clause in the Agreement cannot be enforced against a franchisee who is in breach with all the resulting problems that can cause.
Jonathan Chadd is Head of Franchising for Leathes Prior Solicitors.
Leathes Prior is affiliated to the British Franchise Association and has more than 25 years' experience in advising franchisors and franchisees across a wide variety of business sectors on the expansion and management of their businesses through franchising.
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