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WHAT INFORMATION SHOULD BE PROVIDED TO PROSPECTIVE MASTER FRANCHISEES?
Many foreign franchisors find it difficult to believe that there are no franchising laws in the UK and in some European countries. Increasingly franchising is being regulated by imposing disclosure or registration requirements or imposing relationship obligations/ restrictions. None of these apply in the UK where general principles relating to all commercial contracts are applied to franchising.
Does this mean that it is not sensible to provide disclosure documentation that has been prepared overseas to a prospective UK master franchisee/sub franchisees? Generally it isn’t. Many countries (and the US is the most obvious example) impose very detailed disclosure requirements that are simply not relevant to a UK master/sub franchisee or are far too detailed and franchisors do need to be aware that any information they supply, which is not accurate, may constitute a misrepresentation in respect of which it is sometimes difficult to exclude liability. Of course, franchisors’ contractual documentation will seek to exclude the franchisor’s liability for misrepresentation but if the false information was provided knowingly, without belief in its truth or recklessly then it is extremely unlikely that any exclusions of liability will be enforceable. Whilst there is nothing wrong in providing a foreign disclosure document, the document must be accompanied by appropriate wording to the effect that it is being provided to give a prospect information about the “home” activities of the franchisor and that the prospect should not assume that the same circumstances would prevail in the UK or in any other jurisdiction. Ideally other information relevant to the territory of the master franchisee should also be provided.
Clearly, franchisors have to be full and frank in the information that is provided and, inevitably when negotiating a master franchise agreement a substantial amount of information will be provided. This information needs to be effectively catalogued so that there is no doubt as to precisely what was and what was not provided. At the same time it certainly makes sense to invite, in a formal way, the prospect to list the specific information which is required to be provided. Really the onus needs to be put on to the prospect to highlight the information that is needed. This will ensure that you do not over provide information that is not relevant and which can expose you to a claim. That is the position in the UK.
Most European countries do not have specific disclosure laws but their civil codes impose a general obligation on franchisors to provide full and appropriate disclosure to prospects. The challenge for foreign franchisors in countries which impose general disclosure obligations is that it is never entirely clear precisely what it is that the foreign franchisor must disclose. In those circumstances it is, of course, essential that, as in all cases where overseas expansion is contemplated, expert local advice should be obtained.
The golden rule is not to assume that the same legal and regulatory requirements prevail in Europe as in your home country!