With great power comes great responsibility

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 that the franchisor offered to perform for its franchisees. These days, when reviewing franchise agreements, I have noticed the clauses dealing with the franchisor’s obligations 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.

In determining the obligations of a franchisor, much depends on the nature of the business. The kinds of obligations that a franchisee should rightly expect from a franchisor of a fried chicken business, for example, are going to vary considerably from those expected of a franchisor of a dry cleaning 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 and this obligation must continue beyond initial training, so that franchisors are obliged to provide 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 systems, 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. Nevertheless, franchise agreements should contain provisions relating to this so that prospective franchisees can make a decision as to whether such provisions are acceptable to them or not, on an informed basis.

Support

Crucial to any successful franchised operation is the support a franchisor gives to its franchisees. This is, after all, one of the things franchisees pay for. There should, therefore, be a positive obligation on the franchisor to provide such support as a franchisee may reasonably require in order to run their 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 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 piloting or market-testing any improvements. Mature franchisors also encourage franchisees to use their initiative to think of improvements and innovations and to relate any ideas they may have to the franchisor, but it is the franchisor who must decide whether an idea is worth taking up, developing and subsequently passing to the rest of the network to incorporate into the franchised system.

Quality control

Different franchisors have different methods of ensuring that quality is maintained throughout the network but before they can do this they must be sure of the quality of their systems, products, etc. This is best done by the franchisor having conducted a successful pilot operation. Having established the requisite quality and standards, the franchisor must provide sufficient mechanisms in the franchise agreement to ensure franchisees operate to the same standards.

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 brand, at least at a 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 business 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 necessary tools to ensure success of a franchised business.

Even in businesses that do not need any form of direct advertising or marketing, many franchisors still undertake to provide franchisees with artwork, flyers, point-of-sale material, website, etc, thereby ensuring quality, standardisation and economies of scale for its franchisees.

I can think of many more obligations that could be added to the above list if one takes into account the type of business. Nevertheless, this article will, I hope, at least help prospective franchisees get a feel for what they should be looking for.

Manzoor Ishani is a senior consultant solicitor with Sherrards Solicitors, a commercial practice advising franchisors and franchisees in the UK and internationally.