There is no legal definition or specific law governing franchising in the UK. Common law would regard a franchise agreement as a complex, hybrid contract including various elements from other commercial contractual arrangements.

 

There are no legal requirements or compliance procedures imposed on the franchisor prior to offering franchises in the UK. There are no disclosure requirements under UK Law for franchisors.

 

There is no specific government agency which regulates the offer and sale of a franchise. It is the buyer’s responsibility to undertake sufficient inquiry and due diligence on the transaction they are entering into on the ‘buyer beware’ principle.

 

Other laws that affect franchising agreements include the Fair Trading Act 1973 and the Trading Schemes Act 1996, which relate to ‘pyramid selling’ schemes, but which apply to many franchise arrangements. The Trading Schemes Regulations do not apply (by virtue of the Trading Schemes (Exclusion) Regulations 1997) where either the franchise operates as a single-tier trading scheme (franchisor and one level of franchisees below it) or all the franchisees are VAT-registered at all times. Appropriate provisions must be included in the franchise agreement to ensure that the exemptions apply to protect the network.

 

The offer and sale of a franchise business is not subject to any specific laws, but will be subject to more general principles of contract and tort (civil wrongs) laws. Generally the principle of ‘caveat emptor’ or ‘buyer beware’ applies, however, the parties should be aware of the laws relating to misrepresentation. The franchisee may have a claim for misrepresentation where there has been an untrue statement of fact made by the franchisor, which induces the franchisee to enter into the franchise agreement and subsequently causes the franchisee to suffer loss. Misrepresentation can be innocent, negligent or fraudulent. Depending on the type of misrepresentation, the franchisee can claim rescission of the contract with reimbursement of fees and other amounts paid, or damages.

 

The general laws which govern commercial relationships would also apply.  Both franchisors and franchisees are required to comply with their obligations under the Data Protection Act 1998, and failure to do so may subject the breaching party to fines. The Data Protection Act governs the protection of personal information.

 

Article 101 of the Treaty on the Functioning of the European Union (TFEU) regulates agreements, decisions and concerted practices which affect trade between member states of the EU. Article 101 is also enshrined on a domestic level in the UK Competition Act 1998. The EC or UK competition law authorities may carry out investigations into anti-competitive activities. In the UK the OFT is the principal enforcement agency.  However, not all franchise agreements fall under article 101 TFEU as they are not of sufficient size and scale to be deemed relevant. In addition, vertical agreements, including franchise agreements, are exempt from article 101 TFEU if they come within the terms of the 2010 Vertical Restraints Block Exemption.