4-6 hoursHard

How to Create a Franchise Agreement

Create a franchise agreement by defining the franchise rights (territory, brand, system), the fee structure (initial fee, ongoing royalties, marketing levy), operational standards, training and support obligations, term and renewal, and termination provisions.

Last updated: February 2025

Step-by-Step Guide

1

Define the franchise grant and territory

Specify the rights being granted, the territory (exclusive or non-exclusive), and the franchise system the franchisee must follow.

Tips
  • •Be specific about territorial boundaries to avoid overlap disputes.
2

Set the fee structure

Detail the initial franchise fee, ongoing royalty (usually a percentage of turnover), marketing fund contributions, and any other charges.

Tips
  • •Explain what the franchisee receives in return for each fee.
3

Establish operational standards and brand guidelines

Set out the operations manual requirements, brand standards, approved suppliers, and quality control procedures the franchisee must follow.

Tips
  • •Reserve the right to update the operations manual and standards.
4

Detail training and ongoing support

Describe initial training, ongoing support, field visits, and any technology platforms provided.

Tips
  • •Specify what is included in the fee and what incurs additional charges.
5

Set term, renewal, and termination provisions

Define the franchise term (typically 5-10 years), renewal conditions, and grounds for termination including material breach and insolvency.

Tips
  • •Include a reasonable cure period for remediable breaches before termination.
6

Include post-termination and restrictive covenant provisions

Address what happens to the franchisee's business, premises, customer data, and ongoing restrictions after the franchise ends.

Tips
  • •Post-termination non-competes of 1-2 years within the territory are common in franchise agreements.

Legal Requirements

The UK has no franchise-specific legislation, but franchise agreements must comply with the Competition Act 1998 (vertical agreements exemption), Unfair Contract Terms Act 1977, and the BFA (British Franchise Association) Code of Ethics if you are a member. Pre-contractual disclosure of material information is required under the BFA code.

Common Mistakes

Not providing adequate pre-contractual disclosure, undermining the franchisee's informed consent
Setting royalties too high without sufficient support, leading to franchisee failure
Failing to include adequate quality control mechanisms

Template / Example

Franchise Agreement: [Franchisor] grants [Franchisee] the right to operate a [Brand] franchise at [Location/Territory] for a term of [X] years. Initial fee: £[X]. Royalty: [X]% of gross turnover, payable monthly. Marketing levy: [X]%. The Franchisee shall operate in accordance with the Operations Manual.

When to Get a Solicitor

Always. Franchise agreements are complex, long-term commitments with significant financial implications for both parties. Both franchisor and franchisee should have independent legal advice.

FAQ

Is there a franchise law in the UK?

No. Unlike the US and some EU countries, the UK has no franchise-specific legislation. Franchise agreements are governed by general contract law, competition law, and (if applicable) the BFA Code of Ethics.

What is the average franchise fee in the UK?

Initial franchise fees in the UK typically range from £10,000 to £50,000 depending on the brand and sector. Ongoing royalties are usually 5-10% of gross turnover. Total investment costs vary widely by sector.

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This is guidance, not legal advice. Consult a solicitor for complex matters.

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