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Franchised enterprises are big business – in the UK alone there are around 48,000 franchise companies.
As a franchisee, you will make a significant investment when you sign a franchise agreement. In return, you will expect to receive a certain level of support to achieve business success.
However, if you find that the franchise isn’t delivering as expected, then depending on the issues involved, you may be able to raise a dispute due to a breach of the contract.
- Failure to deliver support
Typically, a franchise will promise business support such as providing operational manuals or training for you and your staff. If they fail to deliver this, they may be in breach of the original agreement.
Equally, if you feel that the franchise agreement was misrepresented in some way, for example you were provided with financial projections which were exaggerated, you could have grounds for terminating the agreement.
- Derogation from Grant
If you were promised a particular benefit, such as exclusive rights to trade in a particular geographic area, and find that this is not the case, you could dispute the agreement as the franchisor has ‘derogated’ from the original terms.
- Trading Schemes Act 1996
This legislation was brought in to deal with illegal pyramid trading and if a franchise is found to be breaching these regulations, any contracts signed could be terminated.
There are also certain situations where a franchisee may be accused of breaching the terms of the agreement:
- Trading outside authorised franchise agreement
It is important to understand that a franchisor will have a number of rules in place to protect the integrity of their brand; for example use of authorised packaging, good and materials and even marketing support.
If you opt to use unauthorised goods or services, you may be found to have breached the terms of your original agreement and sanctions could be applied depending on the terms and conditions of the original contract.
- Post termination restrictions
If your initial franchise has been a success, then at the end of your agreement, you may be tempted to strike out alone.
However, you need to be aware of any restrictive clauses which may prevent you setting up in competition within a certain period of time after the franchise agreement has ended. Depending on the terms of the restrictions you may have grounds to challenge these.