Surprisingly, there is no body in the UK responsible for franchise regulation. This is because the UK does not have any franchise specific laws, instead franchises are subject to general UK business laws. The British Franchise Association are a non-legal entity who promote and accredit aspects of franchising in the UK. However, as there are no specific laws or specific body regulating franchises, the UK does not have a legal definition for franchises. They instead use the European Franchise Federation’s definition:
“Franchising is a system of marketing goods and/or services and/or technology, which is based upon a close and ongoing collaboration between legally and financially separate and independent undertakings, the Franchisor and its individual Franchisees, whereby the Franchisor grants its individual Franchisee the right, and imposes the obligation, to conduct a business in accordance with the Franchisor's concept.” (Source: European Franchise Federation)
Despite there being no franchise specific legislation, there are a few key laws that franchisors and franchisees should be particularly knowledgeable of. Fraud laws are applicable, particularly the Misrepresentation Act of 1967, however, there is still no requirement to provide franchisees with a disclosure document before signing a contract as is standard in the US.
Other important laws to bear in mind are the Fair Trading Act of 1973, the Trading Schemes act of 1996 and the Trading Schemes Regulations of 1997. Whilst these laws are intended to regulate pyramid schemes and multi-level-marketing operations, they would also make franchising illegal if it were not for the Trading Schemes (Exclusion) Regulations of 1997. This regulation states that an agreement is exempt as long as:
- The franchise runs as a single-tier trading scheme, and
- That all franchisees are registered for VAT at all times.
If you are a franchisor or franchisee and choose to join the British Franchise Association, you will be required to adhere to their Code of Ethical Conduct. This code should not be included in any contractual agreement unless already agreed upon, and is intended only to provide guidelines. The most pertinent requirements for the Code of Ethical Conduct state that:
- A prospective franchisor must test out the idea before starting to sell franchises
- There are specific requirements pertaining to the return of preliminary deposits.
- Any advertising intended to recruit franchisees must be clear and truthful
- Any and all dealings between franchisors and franchisees must be handled fairly.
More information on the BFA and their Code of Ethics can be found on their website.