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Whether you plan on becoming a master franchisor or want to run a single unit for a foreign brand, Manzoor Ishani reveals what you need to know

There is no law in the UK to dictate the length of an international franchise agreement - it is up to the franchisor and the franchisee to decide on this. From a commercial point of view, no one will invest if the agreement is not long enough for the franchisee to recoup the investment.

When considering the draft of the European Code of Ethics, The European Franchise Federation debated at some length whether or not the Code should impose a minimum term for a franchise. In the end it was accepted that no hard and fast rules could be set down. However, they did establish the principle referred to above, that franchise agreements should be for such a sufficient period so the franchisee can get their investment back and enjoy a return on it.

The franchisor will often prefer a longer term for its international franchise agreement because the resources required to replace a foreign franchisee are generally greater than those required to recruit a franchisee in their own country.

Master franchise agreements

Unlike single-unit franchise agreements, international master franchise agreements are negotiable. There are a number of mechanisms available to a franchisor to structure the period of the franchise in a way that best suits the requirements of both parties.

When negotiating a master franchise agreement, it's best to work backwards. The master franchisee needs to determine what term will be marketable to its prospective single-unit franchisees. If the nature of the franchise is such that the single-unit franchise agreement has to be for 10 years if it is to sell, then the master franchisee will be looking at a minimum term of 25 years, particularly if it is going to give its franchisees a right of renewal for a further period; something most franchisees expect.

Single-unit agreements

In the case of a single-unit franchise agreement from a franchisor who has itself derived rights from a foreign franchisor, what special precautions should the prospective franchisee take?

1. Never accept anything at face value.
2. Never make assumptions (the fact that it is successful in the US does not mean it will succeed in the UK).
3. Never be afraid to ask searching questions.
4. Check carefully to see how well resourced the franchisor is to support you. Have they spent the bulk of their financial resources on buying the rights from the foreign franchisor (or on entering the UK market) so that it is strapped for cash?
5. What is the franchisor's experience of franchising (as opposed to experience in running that business) in the UK (as opposed to in another country)?

In the final analysis, buying rights to a foreign system, either directly from the foreign franchisor or from someone who has bought rights to the whole of the UK and is selling single-unit franchises, one has to be more vigilant than if one was buying a franchise from a UK franchisor for a UK system.

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