Invest in an agreement prepared by a lawyer which specialises in franchising. Take an active involvement in the agreement’s preparation. It will reduce unnecessary complexities. Ensure any onerous terms are strictly required. Put in place internal procedures to ensure that the agreement is executed correctly. A senior person or external lawyer should, in all cases, review how agreements have been executed. There should be a procedure for the educating your team as to the significance and meaning of the franchise agreement. Diarise to update the agreement every 3 to 5 years. It must reflect changes to your business and legal developments.
Ensure that all information and especially financial information, which is presented to prospective franchisees, is truthful and regularly updated. It should reflect the position of the franchise and the network at the time the information is given. Marketing materials should be reviewed by your legal team. Encourage prospective franchisees to seek specialist legal and accountancy advice.
Failing to communicate clearly and concisely often intensifies disagreements. The pressure to respond to emails quickly, combined with access to email wherever we are, has led to the misuse of the written word more and more. Expressions of tone, which would otherwise be abundantly clear in person, are often lost or misconstrued. Giving yourself time to respond and seeking assistance to prepare responses can pay dividends, saving both time and money. Recognise that engaging in written correspondence is not in everybody’s skill set. That goes for both you as the writer and your franchisee as the reader. A lengthy email explaining why your franchisee should do as you say, may be counterproductive if your franchisee will need to instruct a lawyer to understand it. Consider that the Court places a heavy emphasis on contemporaneous correspondence when deciding the outcome of a dispute, before pressing the send button.
Involving the services of a specialist dispute lawyer is often seen as the last resort – “we have tried everything else, time to get the litigator involved.” Lawyers with franchising experience may be able to point you in the direction of a creative commercial option you may not have considered, if you involve them early enough. Franchisors should work hard to investigate commercial alternatives to engaging in a legal dispute. The commercial options tend to narrow the longer a dispute continues.
Most modern franchise agreements contain a dispute resolution clause. It will usually envisage a face to face meeting followed by a mediation. A mediator is a neutral third party who works with the parties to reach a resolution. Agreeing to mediate is not a sign of weakness. Mediators can be used with or without each party being represented by lawyers. CEDR offers professional mediators for as little as £550 (inclusive of VAT) per party.
Terminating an agreement is the “nuclear option” – an option which often leaves the franchisee with no alternative than to seek legal advice. The agreement should contain intermediary measures, such as serving breach notices, notices of suspension or declaring a territory non-exclusive.
Treat all litigation as an investment. There are “bad” investments and “good” investments. What seemed like a straightforward debt claim, can evolve into a complex dispute, if the franchisee brings a counterclaim for misrepresentation or breach of contract. Strategy and risk assessments should be subject to constant review.
