High expectations for franchisees

Manzoor Ishani on what obligations franchisees should expect their franchisors to fulfill

In the early days of franchising when franchisors and franchisees tended to be less sophisticated and streetwise, franchise agreements contained a host of detailed obligations which the franchisor offered to perform for its franchisees. These days, when reviewing franchise agreements for clients, banks, etc, I am increasingly coming across clauses that deal with the franchisor’s obligations which are fewer in number, more general in nature and short on detail as to exactly what it is that the franchisor will do for its franchisees.

There are a number of theories as to why this is so; the more specific the obligations, the more demanding the franchisee will be; the greater the detail, the greater the inflexibility enjoyed by the franchisor. It is not so much the number of obligations, but rather their nature that is important because franchisees are now much better informed and confident about their rights and expectations than they were previously. Some of these theories are based on sound principles, others less so, whilst some are a poor attempt at thinly disguising a hidden agenda.

All this is small comfort to a prospective franchisee who is eager to know what the industry norm or standard is by which they can judge their particular franchisor. In determining the obligations of a franchisor, much depends on the nature of the business. Nevertheless, almost all professional advisors and ethical franchisors would agree that there are certain franchisor obligations fundamental to ethical franchising irrespective of the nature of the business franchised.

Training It is fundamental to franchising that franchisors train franchisees in how to operate the franchised business. This obligation to train must continue beyond initial training so that franchisors are obliged to provide continuing and further training to franchisees during the subsistence of the franchise agreement.

Protection and reputation 

Franchisees pay franchisors for the right to use their intellectual property such as the trade name, trademarks, know-how, copyright, business system etc. Franchisors should do whatever they can to protect their intellectual property and should be under an obligation to continue protecting their intellectual property including, where necessary and sensible, taking court proceedings against infringers. A balance has to be struck between what is necessary, desirable or practicable in the interests of the franchisor, the franchisee and the franchised network as a whole. 

Support 

Crucial to any successful franchised operation is the level of support a franchisor gives to its franchisees. This is, after all, one of the things franchisees pay for. There should therefore, be an obligation on the franchisor to provide such support as a franchisor may reasonably require the franchisee to run his or her franchised business in accordance with the franchisor’s system. The level of support required will vary from one franchisee to another.

Improvements 

The obligation to enhance, develop and improve the system, the services, the product range, etc, of a franchised business lies squarely with the franchisor. This obligation is fundamental and is one that cannot be delegated to franchisees. One of the principal obligations of franchisees is to sell the goods and/or services that are the subject of the franchise, not to develop them. Of course, franchisees should be involved in assisting franchisors to a reasonable extent in pilot/ market testing any improvements.

Advertising and marketing 

This is one obligation that not everyone agrees on. Some feel that the obligation to provide, conduct, co-ordinate, etc, the advertising and marketing of the franchise, at least at the national level, should be that of the franchisor. Much depends upon the nature of the business. In some cases franchisors are content to leave it to franchisees and feel that their franchised business is such that it would benefit little by any form of national or regional advertising. Other businesses are increasingly becoming reliant upon national or regional advertising, marketing and promotions as a necessary feature to ensure success of a franchised business.

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