Franchise agreements: what they contain and what to check

There is no franchise law in the UK

Several countries have a statute that regulates franchising, requiring a disclosure document in a set form, a cooling-off period and registration of franchisors. The United Kingdom has none of that. A franchise agreement in England and Wales is an ordinary commercial contract, and the rules that apply to it are the general ones: contract law, the law of misrepresentation, competition law and, where premises are involved, landlord and tenant law.

The British Franchise Association fills part of the gap. Its members go through an accreditation process and sign up to its Code of Ethics for Franchising. The code is a condition of membership and carries weight in the industry, and it has no legal force against a franchisor who is outside the association. A prospective franchisee dealing with a BFA member has a standard to hold them to; one dealing with anybody else has the contract and the general law.

The practical consequence is that the agreement is the whole relationship. What the document says the franchisee can and cannot do, what happens when it ends, and what the franchisor has promised in return is what governs, and there is no statutory floor beneath it.

What the agreement contains

Franchise agreements vary in length and style, and almost all of them deal with the same subjects.

The grant and the territory. The right to operate the business under the franchisor's name and system, in a defined area. Read whether the territory is exclusive, meaning the franchisor promises not to grant another franchise or trade there itself, or merely a description of where the franchisee operates. Online sales and national accounts are the usual points of friction.

Term and renewal. Franchise terms of five or ten years are common. A renewal right is usually conditional: the franchisee has to have complied, give notice within a window, sign the franchisor's then current form of agreement, and sometimes refurbish or pay a renewal fee. The then current agreement may be materially worse than the one being renewed.

Brand standards and the operations manual. The agreement requires the franchisee to run the business in accordance with a manual the franchisor can change. The manual is where most of the day-to-day obligations live, and it is rarely attached to the agreement, so ask to see it before signing.

Intellectual property. A licence of the trade marks and the system, with obligations to protect them and an acknowledgment that any goodwill belongs to the franchisor.

Fees, restrictions, termination and sale each have their own section below.

Fees, royalties and supply ties

The initial fee buys the right to join and usually covers training and launch support. The continuing fee, or royalty, is a percentage of turnover or a fixed monthly sum. A marketing levy on top is common. Some agreements add technology fees, renewal fees and transfer fees.

The supply tie is often the largest cost, and it is the hardest to see. Many franchise agreements require the franchisee to buy products or services from the franchisor or a nominated supplier, and the franchisor earns a margin on those purchases. That margin can exceed the royalty, and it is set by the franchisor. A franchisee should ask what the tie covers, whether prices are benchmarked against the open market, and what happens if a nominated supplier fails.

Turnover-based royalties should be checked for what counts as turnover. A definition that includes VAT, or refunds, or sales that were never collected, produces a royalty on money the franchisee never received.

Non-compete clauses during and after the term

During the term, a franchisee is prohibited from running a competing business, and that is unremarkable: the franchisor has handed over its system and cannot have it used against it.

After the term is where the argument lies. Franchise agreements typically prohibit the former franchisee from carrying on a similar business for a period after termination or expiry, within a defined area, and from dealing with the customers of the franchise.

Two sets of rules limit these clauses. The first is the common law on restraint of trade, under which a restriction is enforceable only if it protects a legitimate interest and goes no further than reasonably necessary. Our guide to restrictive covenants covers how courts approach that in the employment context, and the reasoning carries over. The second is competition law, which is the subject of the next section.

Where competition law draws the line

Section 2 of the Competition Act 1998, known as the Chapter I prohibition, prohibits agreements that have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom. Section 2(4) makes a prohibited agreement void. Fixing prices, limiting markets and sharing markets are listed as examples.

A franchise agreement is an agreement between businesses at different levels of the supply chain, which competition law calls a vertical agreement. The Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022 exempts vertical agreements from the Chapter I prohibition as a class, provided the conditions in the Order are met. Article 6 requires that neither the supplier's nor the buyer's share of the relevant market exceeds 30%. Article 8 lists hardcore restrictions, any one of which removes the exemption from the whole agreement. Article 10 lists excluded restrictions, which take the individual clause outside the exemption without affecting the rest.

Resale price maintenance. Article 8 makes it a hardcore restriction to restrict the buyer's ability to determine its own sale price. The franchisor may impose a maximum price or recommend a price, provided those do not amount to a fixed or minimum price as a result of pressure or incentives. A franchisor that requires its franchisees to charge a set menu price, or penalises those who discount, is on the wrong side of this line.

Non-compete during the term. Article 10 treats a non-compete obligation that is indefinite, or that exceeds five years, as an excluded restriction, and an obligation that renews automatically beyond five years counts as indefinite. There is an exception where the franchisee trades from premises owned or leased by the franchisor, in which case the obligation can last for as long as the franchisee occupies those premises.

Non-compete after the term. Article 10 also excludes any obligation causing the buyer, after the agreement ends, not to manufacture, purchase, sell or resell goods or services, unless three conditions are met: the obligation lasts no more than one year after termination, it is limited to the premises from which the buyer operated during the agreement, and it is indispensable to protect know-how the supplier transferred to the buyer. An obligation to protect know-how that has not entered the public domain can be imposed without a time limit.

A clause that falls outside the block exemption is not automatically void. It has to be justified on its own merits under the Act, and that is an argument the franchisor would rather avoid. So a well drafted post-term restriction in a UK franchise agreement is one year, tied to the premises, and framed around protecting the system, and a franchisee offered a two-year, twenty-mile restriction has a real point to make.

Termination, step-in and selling the franchise

Franchise agreements give the franchisor wide rights to terminate. A material breach not remedied within a short period, insolvency, a failure to meet minimum performance, a change of control of the franchisee company, and conviction of an offence that damages the brand are all typical triggers. The franchisee's rights to terminate are usually limited to the franchisor's insolvency or an unremedied material breach, and some agreements give the franchisee no termination right at all.

Step-in rights allow the franchisor to take over the running of the franchised business, either temporarily during a breach or permanently on termination, usually on payment of a sum for the assets and stock calculated under the agreement. Read how that sum is calculated. A formula based on written-down book value can leave a franchisee who has built a profitable business with very little.

Selling the franchise is almost always subject to the franchisor's consent, to the buyer meeting the franchisor's criteria and completing its training, to payment of a transfer fee, and to the seller signing a release. Many agreements give the franchisor a right of first refusal at the price the third party has offered.

What the franchisor has to tell you

There is no statutory disclosure document in the UK. What a franchisor tells a prospective franchisee before signing is governed by the ordinary law of misrepresentation, and by the BFA code where the franchisor is a member.

The law of misrepresentation is stronger than many franchisees assume. Under section 2 of the Misrepresentation Act 1967, a person who has entered into a contract after a false statement of fact was made to them can recover damages unless the person who made the statement proves that they had reasonable grounds to believe, and did believe up to the time the contract was made, that it was true. The burden is on the franchisor. A financial projection presented as being based on the performance of existing franchisees, when it was not, is the classic case.

Franchise agreements respond with an entire agreement clause and a statement that the franchisee has not relied on anything said outside the document. Section 3 of the same Act provides that a term excluding or restricting liability for misrepresentation has no effect except to the extent it satisfies the reasonableness test in the Unfair Contract Terms Act 1977, and the burden of showing reasonableness is on the party relying on the clause. So those clauses reduce the franchisee's protection without removing it, and a franchisee who has been given figures should keep every version of them.

What can be negotiated

Franchisors say the agreement is standard and cannot be changed, and for a network of any size that is largely true: a franchisor cannot run a system in which every franchisee is on different terms. What is usually open is narrower, and worth pursuing.

The territory and its exclusivity. The length of the initial term, where the franchisee is taking a lease of the same length and does not want the two to fall out of step. The definition of turnover for royalty purposes. The renewal conditions, particularly the requirement to sign whatever form of agreement is then current. The post-term restriction, where the agreement goes beyond what the block exemption protects. The basis on which the franchisor pays for assets on step-in. Personal guarantees from the franchisee's directors, which are asked for as a matter of course and can sometimes be capped. Our guide to personal guarantees sets out what signing one means.

A side letter recording the concessions is the usual mechanism, so that the main agreement stays in its standard form.

Due diligence before signing

Ask for the accounts of the franchisor company and check them at Companies House, along with the identity of its directors and any previous companies they have run.

Speak to existing franchisees, and choose them yourself. Speak to former franchisees too, where you can find them. Ask how many franchisees have left the network in the past few years and why. Ask what the supply tie costs them in practice and whether the support promised has been delivered.

Check the trade marks are registered and owned by the company you are contracting with. Read the operations manual, or as much of it as you are allowed to see. If premises are involved, find out whether the lease will be in your name or the franchisor's, and what happens to the lease if the franchise agreement ends.

Finally, put the figures you have been given to your own accountant, and ask them to say whether the business as described would repay the borrowing you are taking on to buy it. Most franchise failures are ordinary business failures, and the agreement's terms only decide how expensive the failure is.

If you are thinking of franchising your business

The starting point is that the agreement has to survive a franchisee who fails, a franchisee who succeeds and wants to leave, and a competitor who buys a franchisee. Each of those is a different drafting problem.

The trade marks should be registered before the first agreement is signed, in the name of the company that will grant the franchises. The operations manual needs to exist, because it is the system being licensed, and a franchisor whose know-how is not written down has little to protect with a post-term restriction. The agreement should be drafted within the block exemption from the start, since a network built on a two-year post-term restriction or a fixed pricing policy is a network built on clauses a franchisee can challenge.

Recruitment material and financial projections should be prepared on the footing that section 2 of the Misrepresentation Act 1967 will apply to them, which means keeping the evidence for every figure. BFA membership brings the code with it, and for a franchisor recruiting people who are investing their savings, that is a standard worth adopting whether or not the association is joined.

Frequently asked questions

Is there a franchise law in the UK?

No. The UK has no statute regulating franchising, no required disclosure document and no registration of franchisors. A franchise agreement in England and Wales is governed by ordinary contract law, the Misrepresentation Act 1967, the Competition Act 1998 and the block exemption made under it, and landlord and tenant law where premises are involved. The British Franchise Association's Code of Ethics applies to its members through accreditation and is guidance for everybody else.

Can a franchisor stop me competing after the franchise ends?

Within limits. Under article 10 of the Vertical Agreements Block Exemption Order 2022 a post-term non-compete obligation is exempt only if it lasts no more than one year, is limited to the premises you operated from, and is indispensable to protect know-how the franchisor transferred to you. An obligation not to use know-how that is still confidential can last indefinitely. A clause going further has to be justified on its own merits under the Competition Act 1998 and under the common law on restraint of trade.

Can a franchisor set the prices I charge?

A franchisor can set a maximum price and can recommend prices. Fixing the price, or setting a minimum, is a hardcore restriction under article 8 of the Vertical Agreements Block Exemption Order 2022, and so is a recommended price that becomes a fixed one through pressure or incentives. A hardcore restriction removes the block exemption from the whole agreement, which is why well drafted franchise agreements talk about recommended prices and leave the decision with the franchisee.

What if the projections I was given turn out to be wrong?

If they were statements of fact and you relied on them, section 2 of the Misrepresentation Act 1967 lets you claim damages unless the franchisor proves it had reasonable grounds to believe the figures were true when you signed. A statement of pure opinion is treated differently. An entire agreement or non-reliance clause reduces that protection only to the extent the clause is reasonable under section 3, and the franchisor has to show that it is. Keep every version of every figure you were given.

What can I negotiate in a franchise agreement?

Less than in most contracts, because a network has to run on consistent terms, and more than franchisors suggest. The territory and its exclusivity, the length of the term, the definition of turnover for royalties, the renewal conditions, the post-term restriction where it goes beyond the block exemption, the basis on which the franchisor pays for assets on step-in, and any cap on a personal guarantee are the usual points. Concessions are normally recorded in a side letter.

What does the BFA Code of Ethics mean for me?

If the franchisor is a BFA member, it went through the association's accreditation process and has signed up to the Code of Ethics for Franchising, which sets standards for how members recruit franchisees and run their networks. That gives you a standard to hold the franchisor to and a complaint route through the association. It has no legal force on its own, so your remedies still come from the agreement and the general law.

What should I check before signing?

The franchisor's accounts and directors at Companies House, the ownership and registration of the trade marks, the operations manual, the true cost of the supply tie, how many franchisees have left and why, and the terms on which the lease will be held if premises are involved. Speak to existing and former franchisees you choose yourself. Then have your accountant test the figures against the borrowing you would take on.

Sources & further reading

• Competition Act 1998, section 2: the Chapter I prohibition
• Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022
• Vertical Agreements Block Exemption Order 2022, article 6: market share thresholds
• Vertical Agreements Block Exemption Order 2022, article 8: hardcore restrictions
• Vertical Agreements Block Exemption Order 2022, article 10: excluded restrictions
• Misrepresentation Act 1967, section 2
• Misrepresentation Act 1967, section 3
• British Franchise Association: the BFA standards

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 22 September 2026. AD Solicitors Limited is a recognised body regulated by the SRA (no. 8011228).