Is there a specific law governing franchise agreements in England and Wales?

Unlike some countries, England and Wales does not have dedicated franchise legislation. Franchise agreements are primarily governed by general English contract law, including the principles of offer and acceptance, consideration, and good faith as it applies in commercial contracts. However, several statutory regimes are relevant. The Consumer Rights Act 2015 applies where the franchisee deals as a consumer (which is uncommon in commercial franchise relationships but may be relevant in some models). The Competition Act 1998 regulates anti-competitive provisions in franchise agreements, such as exclusive purchasing obligations, resale price maintenance, and non-compete clauses, all of which must satisfy the Chapter I prohibition or benefit from an applicable block exemption. The British Franchise Association (BFA), the principal industry body in the UK, promotes the European Franchise Federation's Code of Ethics, which sets standards for disclosure, fairness, and the franchisee's right to receive adequate pre-contractual information. Although the BFA Code is not legally binding, it is widely regarded as best practice. Franchisors with BFA membership are required to comply with it.

What pre-contractual disclosure must a franchisor provide in the UK?

Unlike the United States (where the FTC Franchise Rule requires a detailed Franchise Disclosure Document) or France (where the Loi Doubin mandates pre-contractual disclosure), England and Wales has no statutory pre-contractual disclosure requirement for franchise agreements. However, the general law of misrepresentation under the Misrepresentation Act 1967 applies: if a franchisor makes a false statement of fact that induces the franchisee to enter the agreement, the franchisee may have a claim for misrepresentation, which can lead to rescission of the agreement and/or damages. The BFA Code of Ethics requires member franchisors to provide prospective franchisees with a disclosure document containing sufficient information to allow an informed decision to be made. This disclosure document should include: details of the franchisor's business history and financial performance; the terms of the franchise agreement; estimated start-up costs and ongoing fees; the territory and any exclusivity arrangements; and references from existing franchisees. Even where the franchisor is not a BFA member, providing full and accurate pre-contractual information reduces the risk of misrepresentation claims.

Are post-termination non-compete clauses in franchise agreements enforceable?

Post-termination non-compete clauses in franchise agreements are subject to the English common law doctrine of restraint of trade and the Competition Act 1998. Under the restraint of trade doctrine, a restrictive covenant is only enforceable if it protects a legitimate business interest of the franchisor and goes no further than is reasonably necessary to protect that interest, having regard to the interests of the parties and the public. Legitimate interests in the franchise context include protecting confidential know-how, trade secrets, and the customer connection built up through use of the franchise system. A restriction will more readily be enforced if it is limited in geographic scope (e.g., the franchisee's territory), duration (typically no more than one to two years for post-term restrictions), and subject matter (restricted to competing businesses rather than all commercial activity). Under the Competition Act 1998, non-compete clauses in franchise agreements may also require assessment under the Chapter I prohibition. Block exemption regulations may apply if the franchisor's and franchisee's combined market share does not exceed specified thresholds. Overly broad restrictions that go beyond what is justified may be void and unenforceable.

What are the competition law implications of exclusive territory provisions?

Exclusive territory clauses in franchise agreements restrict the franchisee to operating within a defined geographic area and prevent the franchisor from appointing other franchisees within that territory. Such clauses are common in franchise agreements and are generally permissible under English competition law, subject to certain conditions. Under the Competition Act 1998 and the Vertical Agreements Block Exemption Order 2022 (which retained the EU Vertical Block Exemption in UK law after Brexit), vertical restraints including exclusive territories may benefit from block exemption if: (a) the market shares of both the supplier (franchisor) and buyer (franchisee) do not exceed 30% on their respective markets; and (b) the agreement does not contain any hardcore restrictions, such as absolute territorial protection (preventing franchisees from responding to unsolicited orders from outside their territory), resale price maintenance, or restrictions on online sales. Franchise agreements with market shares above 30% require individual assessment. In practice, most franchise systems with multiple franchisees will satisfy the block exemption conditions. Legal advice is recommended where the franchise network is large or where exclusive territory provisions are combined with other vertical restraints.

What happens to the franchisee's business if the franchise agreement is terminated?

On termination or expiry of a franchise agreement in England and Wales, the franchisee must immediately cease operating under the franchise system and using the franchisor's trade marks, branding, and confidential know-how. The franchisee must also return all proprietary materials, including the operations manual, marketing materials, and any other materials provided by the franchisor. The franchisee will be bound by any post-termination non-compete restrictions, provided they are reasonable and enforceable (as discussed above). Outstanding royalties and other fees become immediately payable. The franchisee may retain its business premises, equipment, and staff (where not subject to any restrictive covenant), but cannot continue to trade under the franchise brand or system. Where the franchise was operated through a company incorporated specifically for that purpose, the franchisee may need to consider whether to dissolve the company or to convert it to trade under a new brand. Unlike commercial agency relationships, which are protected by the Commercial Agents (Council Directive) Regulations 1993, there is no statutory right to compensation on termination of a franchise agreement in England and Wales.

What VAT obligations apply to franchise fees in the UK?

In the United Kingdom, franchise fees — including initial franchise fees and ongoing royalty payments — are generally subject to VAT at the standard rate (currently 20%) as a supply of services. The franchisor must be VAT registered (or required to register) if its taxable supplies exceed the VAT registration threshold (currently £85,000 per annum). VAT invoices must be issued for each payment in compliance with the Value Added Tax Act 1994 and HMRC requirements. The franchisee may be able to reclaim input VAT on franchise fees if it is VAT registered and the fees relate to taxable business activities. Franchise agreements should specify whether stated fees are inclusive or exclusive of VAT. It is advisable for both parties to take specialist tax advice from an accountant or tax adviser to understand the full VAT, corporation tax, and income tax implications of the franchise arrangement.

Franchise Agreement (UK) — United States

Grant or acquire a franchise licence in England and Wales with this comprehensive Franchise Agreement. Drafted in accordance with English contract law, the British Franchise Association Code of Ethical Conduct, the Consumer Rights Act 2015, and the Competition Act 1998. Covers the grant of licence, territory, initial franchise fee, ongoing royalties, training and support, franchisee obligations, intellectual property protection, non-compete restrictions, renewal options, termination rights, and governing law. Suitable for retail, food and beverage, services, and business-to-business franchise models.

What Is a Franchise Agreement (UK)?

A Franchise Agreement is a legally binding contract used in England and Wales that establishes the terms on which a franchisor grants a franchisee the right to operate a business under the franchisor's brand, trade marks, and business system within a defined territory. In exchange for this licence, the franchisee typically pays an initial franchise fee and ongoing royalties or management fees to the franchisor, and agrees to operate the business strictly in accordance with the franchisor's system, standards, and operational guidelines.

Franchising is one of the most significant forms of commercial expansion in the United Kingdom. The British Franchise Association (BFA), the principal industry body, promotes ethical franchising in line with the European Franchise Federation's Code of Ethics. Successful franchise brands span retail, food and beverage, hospitality, professional services, healthcare, education, and many other sectors. A franchise agreement is the cornerstone of every franchise relationship: it defines the rights and obligations of both parties and provides the legal framework for the entire commercial relationship.

In England and Wales, franchise agreements are governed primarily by general contract law and equity. Unlike some jurisdictions, there is no specific franchise legislation in England and Wales. However, several statutes are relevant, including the Competition Act 1998 (which regulates anti-competitive provisions such as exclusive purchasing obligations and resale price maintenance), the Consumer Rights Act 2015 (which applies where the franchisee deals as a consumer), the Trade Marks Act 1994 (governing protection and use of the franchisor's trade marks), and the Misrepresentation Act 1967 (which addresses pre-contractual representations).

This Franchise Agreement template is suitable for both franchisors granting a new franchise and prospective franchisees seeking to formalise their appointment. It covers the grant of an exclusive franchise licence, territory definition, initial fee, ongoing royalties, training and support obligations, franchisee operating standards, intellectual property protection, confidentiality, non-compete restrictions, renewal options, termination rights, and governing law.

When Do You Need a Franchise Agreement (UK)?

A Franchise Agreement is required whenever a business owner (the franchisor) wishes to grant another party (the franchisee) the right to operate a business using the franchisor's brand, system, and know-how in exchange for a fee. The agreement is the primary legal document governing the franchise relationship and should be executed before the franchisee commences operations or pays any fee to the franchisor.

Common situations in which a UK Franchise Agreement is required include: a restaurant brand expanding through franchising, granting territorial licences to individual franchisees in exchange for an initial fee and ongoing royalties; a professional services firm licensing its operating system, trade mark, and client management processes to regional franchisees; a retail brand granting exclusive territorial rights to franchisees who invest in fit-out, stock, and staffing; and a cleaning, gardening, or home services company expanding its brand through owner-operator franchisees.

A Franchise Agreement should be executed at the outset of the franchise relationship, before the franchisee makes any significant financial commitment or commences operating under the brand. Franchisors should ensure that prospective franchisees have received adequate pre-contractual information and have had the opportunity to take independent legal advice from a solicitor experienced in franchising. The BFA Code of Ethics recommends that prospective franchisees be given a minimum of 14 days to review the franchise agreement before signing.

The agreement is also important when the franchise system is being renewed, transferred, or assigned to a new franchisee. A renewal should be documented in a new franchise agreement or a formal renewal letter, and any assignment or transfer should require the franchisor's prior written consent, as the identity and capability of the franchisee is fundamental to the franchise relationship.

What to Include in Your Franchise Agreement (UK)

A well-drafted Franchise Agreement for use in England and Wales should contain a number of essential provisions, each of which serves a specific commercial and legal purpose.

The grant of licence clause defines the scope of the franchise, identifying the brand, trade marks, and business system being licensed. It specifies whether the licence is exclusive within the defined territory and confirms that all intellectual property rights remain the property of the franchisor.

The territory clause defines the geographic area within which the franchisee has the exclusive right to operate. A clearly defined territory reduces the risk of disputes between franchisees and between the franchisee and the franchisor.

The fees and payments clause covers both the initial franchise fee (a one-off payment for the right to enter the franchise system) and the ongoing royalty or management fee (typically a percentage of gross or net revenue). It should specify VAT treatment, payment frequency, and the consequences of late payment, including interest under the Late Payment of Commercial Debts (Interest) Act 1998.

The franchisee's obligations clause sets out the operating standards the franchisee must maintain, including use of approved suppliers and products, compliance with the operations manual, attendance at training, and compliance with applicable law including the Consumer Rights Act 2015.

The franchisor's obligations clause describes the training and support the franchisor will provide, including initial training, ongoing operational support, marketing assistance, and updates to the operations manual.

The intellectual property clause confirms the franchisor's ownership of the brand, trade marks, and know-how, grants the franchisee a limited licence to use them, and prohibits the franchisee from registering any similar trade marks or domain names.

The non-compete clause restricts the franchisee from operating competing businesses during the term and (within reasonable limits) after termination. The restriction must be reasonable in scope and duration to be enforceable under English law and must comply with the Competition Act 1998.

The termination clause specifies the grounds for termination, including material breach, insolvency, and criminal conviction, and describes the franchisee's obligations on termination.

The governing law and jurisdiction clause confirms that the agreement is governed by the laws of England and Wales.

What Is a Franchise Agreement (UK)?

When Do You Need a Franchise Agreement (UK)?

What to Include in Your Franchise Agreement (UK)

Frequently Asked Questions

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