The Marston s Pub Franchise Agreement

Transcription

1 The Marston s Pub Franchise Agreement Information Guide and Code of Ethics 1

2 Contents Introduction 3 What is Franchising? 4 An Introduction to Franchising 5 An Introduction to the Pub Franchise Agreement 6 The Franchise Opportunity 8 Is the Business Right for Me? 11 Legal Questions, Agreement and Regulations 12 Financial Information 16 Franchise Summary 17 Selling the Business 18 Your Next Steps 19 Code of Ethics 20 2

3 Introduction Deciding to open any new business is a difficult decision, especially if you have never owned a business before. Here at Marston s we understand this and we want to try to answer as many of your questions as possible so that you can make the best decision to suit you. It is only by choosing franchisees that are sure that this is the right business for them that we will both profit from you joining the franchise. We want people that are committed to the long term future of the business. We don t want to just sell you a franchise, we want to work together to develop your business so that it is profitable for both of us. We hope that this document answers most of your questions but if you have more, please don t hesitate to contact us using the details below: Telephone: Website: Address: franchise.opportunities@marstons.co.uk Marston s Franchise Marston s House Brewery Road Wolverhampton West Midlands WV1 4JT 3

4 What is franchising? Franchise Concept Franchise Franchise System Franchisor Franchisee Franchise Unit Franchise Network Franchise Package Franchise Agreement Joining Fees Package Fees Management Service Fees The unique (usually niche) business idea that makes this business successful and attractive for others to duplicate. The business that has been structured and systemised so that others can duplicate it with the franchisor s permission. The way that we make it easier for you to duplicate our business through training, manuals, reference materials, support resources, management software, nominated suppliers and more; so that every person replicating our business does so in exactly the same way and doesn t need to re-invent anything that we have already done. The owner / creator of the system, in this case Marston s Pub Franchise. The buyer that wants to duplicate the franchisor s business by setting up their own business in the same way, with the permission of the franchisor through a franchise agreement; in this case, you. One outlet of the franchise using the franchise system in a defined area, usually by postcode, town or county boundary. In this case, the unit will be an existing and trading pub. All the pubs in operation (Local & International). What we will be giving you when you join up in return for the franchise joining fees that we charge you to replicate our business. Contract to protect you and us in our new relationship, so that we can concentrate on building the business because our relationship is secure. All franchisees sign the same franchise agreement so that our relationship is the same and equitable with all franchisees. The cost of buying the rights to replicate the business The cost of all the equipment and services that you need to start trading (often including the Joining Fees). Percentage of your turnover that is charged for ongoing access to franchisor support, advice, development of the business and training (and more). 4

5 An Introduction to franchising What is a franchise? A franchise is a business that has proven to be successful. It is then made available for others to replicate in other parts of the country. Don t customers perceive a franchise to offer worse service than a company owned branch? No. In fact, especially in service businesses like ours, customers actually prefer franchisees because they think that you will give them better service, as you own the business. Similarly, in a customer facing sector like ours, the fact that franchisees operate to a strictly defined service standard is seen as a great benefit. So, if I take a Marston s Pub Franchise is it my own business? Yes, absolutely. Even though we will ask you to operate in a certain way (because we have proven that this way works) it is still your business. You deal with your own customers, own the business and make the profit for yourself. But how much do I have to pay you? We have a very simple formula for our Franchisees which allows you to focus on the core issues of sales and customer service. Naturally it is in our interest to ensure that you get value for money for the fees you pay. This is of mutual benefit because we only make money when you make money, so you are assured of our support. So, why would someone not just start up on their own? The point of franchising is not just to give you the idea. You buy a franchise so that you save all the costs and minimise the risk of failure of trying something new by yourself that you have never done before. We have already proven that both our idea AND the way that we do it is successful in the market. What we pass to our franchisees is that proven method of making our idea work so you need not take the same risks or make the same mistakes that we have already paid for in years of developing our business. If you started alone, you would have to learn everything from zero with no head start or support from us. You would have to work out how to set up a new business, where to get funding, how to find customers, how to find suppliers, where to get trained, how to advertise, what paperwork you need, how to handle accounts and taxation, how to deal with day to day operations and occasional crises, how to deal with customers, how to plan your business, how to deal with legalities and much more. This would be a shame so we train our franchisees how to do all of this and more - at far less cost! So, if I buy a franchise I am guaranteed success? No. We will give you everything that you need to help you to be successful, but it is your business. It will only succeed if you work very hard at it, commit yourself to it and get the results for yourself. Where Marston s have operated the business as part of the managed house division prior to it becoming a franchise, we will disclose the annual turnover and profit generated each year. This is for illustrative purposes only and Marston s offer no guarantee the same levels will be achieved. Statistically, most new business start ups (76%) fail within their first three years of operation, whereas most franchisees (93%) remain successfully in operation 10 years after starting (BFA Natwest Franchise Survey). 5

6 An Introduction to the Marston s Pub Franchise Agreement Who owns the business? Marston s retains ownership of the building and all equipment, fixtures and fittings within each pub. Marston s also retains ownership of the business model and all associated trademarks and copyrights. What is the business? You will be taking on an existing pub business that has been trading for a minimum of five years. This pub will have an existing customer base and will be fully equipped and ready for business. The pub will have a Marston s food menu in place. The pub will be at the heart of the local community and engaging with your local customer base is essential. How long have you been trading? Marston s PLC has been trading for over 130 years. Our franchise model has been in operation for four years. Have you run a successful pilot of the concept? Yes. We have over 370 businesses within our franchise division at present. How can I tell that you have been ethically put together? Marston s PLC is a member of the FTSE4Good, meaning we have signed up to internationally recognised ethical standards. As a full member of the British Franchise Association, we also follow guidelines set out for responsible franchising. Are you a member of the British Franchise Association (BFA)? Yes. We have full membership of the British Franchise Association and were the first pub company to achieve this. Have you ever been bankrupt or, gone into liquidation? No. We are a large PLC company and our Annual Results report can be found on our website. Can I talk to other franchisees? Yes, you may talk to as many franchisees as you wish. Can I see your accounts? We are happy to show you our trading accounts for Marston s PLC and these can also be accessed on our website. How well are you funded? We are a PLC business and as such are very well funded. Our most recent annual report provides full financial disclosure and can be found on our website. 6

7 What is your overriding ethical policy for the franchise? We are full members of the BFA and are signed up to their code of ethics. We are assessed against these ethics. We believe in an honest and transparent relationship with all of our franchisees and pride ourselves on this approach. How do I know that you will support me in the future? Because we are only as successful as our franchisees, so we have to continue to support you in the future if we are to be profitable. It is our good reputation that allows us to keep growing. Remember, we can t let you down or you won t recommend us to others that want to join in the future. How do I know if your support is high quality? For the same reason. We can only grow if all of our franchisees are satisfied by our support. Our support must be good enough to help ensure that all franchisees are successful. 7

8 The franchise opportunity What is the franchise? Our Franchise model is innovative and straightforward and builds on the success of our ground-breaking Retail Agreement. It allows you to focus on delivering an excellent customer experience, building the reputation of your business and driving sales. You will be operating a well-established pub business with an existing track record. We will provide you with the tools and training to be successful. This includes providing a fully equipped business, industry-leading training and menu and we also supply high quality marketing materials. The Franchise is based on a turnover and profit share which means the more welcoming you make your business, the more income you will generate for yourself. What sort of products and services does Marston s Pub Franchise provide? Everything you need to run your business will be provided by Marston s. Some of the products and services we provide are: Training for you prior to you taking on the franchise Training for your staff EPOS tills and back office reporting systems An online payroll system Marketing materials A high quality food menu offering Kitchen and bar equipment and consumables An operating manual, ensuring that you have a clear understanding of our business processes Customer service tools which are trialled and tested in over 370 pubs What s the difference between a Franchise and a Tenancy or a Lease? Our franchise model provides a high level of support when compared with a tenancy/ lease. You will be buying into a business trading format that has been proven across 100 s of pubs on a national basis. You will also benefit from our 130+ years of experience of pub operations and our purchasing power. The costs and risks of our pub franchise are much lower than a tenancy or lease, as the offer and systems are already in place. This leaves you to focus on driving sales and building your business, with our full support. 8

9 What is the Marston s Pub Franchise Operating System? Within the Marston s Pub Franchise, we operate the Homestead Operating Format which is at the heart of our franchise agreement. It has a clear structure, format and menu that provides a strong customer offer that our franchisees follow. It has a clear identity that is central to Marston s goal to be the best place around here. Homestead is a community-focussed offering. We believe that this proven operating system gives our franchisees a strong platform to be successful within the hospitality marketplace. Do I have to buy all products and supplies through Marston s? One of the keys to a successful franchise is consistency. To achieve this, there are certain products and supplies that you will need to purchase exclusively from us. These include all drinks sold across the bar (beers, wines, bottles, soft drinks etc), all food sold from the kitchen and all consumables. You will be required to source certain services yourself, in particular, entertainment and gardening. Who pays for entertainment? We have found that the best way to provide good value, quality entertainment is for the franchisee to source this themselves. This gives you the flexibility to source local entertainers and to find the best deals. Do I need staff? Yes. There will be existing, experienced staff working within the business. These staff will transfer to you to support you from Day 1, via the Transfer of Undertakings (Protection of Employment) regulations (TUPE). We will provide you with detailed information, including how many employees will be transferring, what they are paid and how many hours they work, on average. We can accompany you to a staff meeting at the pub; during which we will give the staff details of the TUPE process. Once you have taken on the franchise, you will be able to develop your team as you see fit. Marston s will provide you with tools to help you manage your team, including training materials and an online payroll system. Does the Pub have living accommodation and what will it cost? Yes. All pubs will have living accommodation. This is free of charge and appropriate to the size of the pub. Not only that; Marston s will also cover all utility costs for this accommodation. You will need to pay your council tax and telephone line rental. There are no other charges payable to Marston s. All that we ask in return is that the franchisee (or a manager appointed by the franchisee) lives onsite. You are also not able to sub-let the accommodation to anybody not directly associated with yourself or the business. What training will I receive? Training is at the heart of our franchise. With our extensive experience and dedicated training professionals, we provide industry-leading training. This also includes first class training facilities. There are many aspects to your training which include: System standards, regulatory requirements and health and safety Marketing and operational processes Staff recruitment, employment and payroll Software and IT systems Business management In short everything you will need to get your business up and running. In every instance you will be trained by professionals with direct experience of the processes which are being covered. Many of these people will also be your first point of contact for support queries. Our training can also be provided to members of your 9 management team, if they will be running the business on your behalf.

10 How do I set up the business? Don t worry; we will assist you with everything you will need to do. We provide all the administration needed to set up and supply you with all the equipment and training that you need. You will need to have a bank account, personal licence, set up a registered company or partnership, be VAT registered and eligible to work in the UK! What ongoing support do you offer? Simply put: as much as you need. With our 130 years of experience, we are here to help make sure that your business is a success. Some of the support that we offer will include: Assisting you in targeting your approaches to attract new customers. This is achieved through regular business meetings with an experienced Area Operations Manager who will support you. Providing you with up-to-date documentation - We maintain an online library of all of our manuals, reference materials and forms, with your own personalised log-in As part of your Franchise Package you will receive an EPOS software suite to handle the day to day sales for the pub. You will receive ongoing support as well as full training in its usage. Additionally: We are always available to you by phone to talk you through any situation. We keep you up-to-date with changes in the regulations. We provide additional training when you need it. We make regular visits to you; to help you in your local market and to discuss any problems and opportunities that you may have. We support your marketing, PR and communication. We can help you should you decide to sell your business in the future. We continually monitor the competitiveness of our offering and will advise you of any changes in the market on a regular basis. 10

11 Is the business right for me? Should I look at other franchise opportunities? Of course; you should feel free to look at other franchises because deciding to start your own business is one of the most important decisions you may ever make. We want you to be sure that joining Marston s is the best decision for you and expect the best franchisees to have considered the alternatives to ensure that we are the best option for them. Should I involve my family in the decision? Yes. Running your own business takes a lot of commitment and it will be difficult for you to give everything to the start up of your new business and to work hard in it if you don t have the support of your partner and immediate family. We are happy to meet with your family at any stage of the recruitment process so that they too can learn about the business and help with your decision. Can I involve my family in the business? Yes. Many franchisees will find that they are good at certain aspects of the business whilst their partner or family member is good at others or the other way around. We only ask that we can meet anyone from your family that you intend to involve in the operation. Who else can help me make the decision? Anyone that you are comfortable with! Many franchisees involve their solicitor, accountant, bank manager or friends with more business experience. We are happy to meet with any of them at your request. We recommend that you seek legal advice on the agreement. Do you help me to reach a decision? We only provide you with information so that you can make the decision yourself. The final decision is always yours and we would not want to prejudice that by leading you one way or the other. What previous qualifications do I need? The only qualification that we require you to have is a personal licence. This can usually be obtained by you, during our recruitment process. Do I need to know how to run a pub business? No. We will train you in what you need to know to set up and run our business and have put a management system in place to make any administration as easy as possible to cope with. We also offer you ongoing support so that we will be able to assist you with any business situation you come across in the future. Is this my own business? Yes. We are not your employer and we don t tell you how to run your business on a day-to-day basis that s up to you, but we will for obvious reasons require you to maintain the same high standards upon which Marston s Pub Franchise has built its reputation. What happens if I discover that I don t like the business in the future? We are careful in the franchise recruitment process to try and make sure that everyone that joins our franchise will enjoy and prosper in it. If you discover in the future that the business isn t for you then you are free to sell it on to a new franchisee. 11

12 Legal questions, agreement and regulations Once I apply to you, am I under any obligation? No. You can decide not to proceed any further at any time before you sign the franchise agreement (which is at the end of the process, just before you start training). Even if you tell us that you are sure that you are going ahead and change your mind in a later meeting, that s fine. Do I need to pay you any money now? No. You can take as long as you want to decide whether you want to proceed and we will not charge you anything. We will ask for a deposit once you have accepted a formal offer. What is the recruitment process? The initial stage of our recruitment process is to attend a Discovery Day for you to learn more about our business and how we operate. Following this we would ask you to meet with our recruitment team for an initial meeting and to produce a first stage business plan. You will then meet an Area Operations Manager in order to discuss our franchise model and if you are successful then you will be asked to produce a business plan for a specific pub. As part of identifying the right franchise opportunity for you we will provide you with the relevant financial and staffing information. During the time in which you are building the business plan and deciding if this is the right opportunity, you can request to meet with an Area Operations Manager at any stage to support you. We also arrange for you to attend an InnSites Weekend which allows you the opportunity to work within one of our Houses of Excellence for a weekend. This is an important part of the process as it enables you to experience what it is like to operate one of our businesses which we hope will help you to decide if running a pub business is right for you. Once the business plan is complete and you have attended your InnSites Weekend you will meet with the Franchise Regional Manager to discuss your final plan in detail and then if both parties are happy you will sign your franchise agreement. You can ask us as many questions as you wish, talk to a franchise consultant in confidence and have more meetings if you need them before you decide to proceed further however long that takes because we want you to be sure of your decision. We expect our recruitment process to take a minimum of 60 days during which time we will give you a copy of our franchise agreement to take away and encourage you to complete a comprehensive business plan that you can review with your own advisors, solicitor, accountant, family and friends. Once you have the necessary funding to start up, we will both sign the franchise agreement, collect the balance of the fees and then book you in for training so that you can get started as soon as possible. You may of course decide that you are no longer ready to go ahead at any point in this process before signing the agreement and you will only lose the non-refundable element of your deposit (should you withdraw your interest after making the deposit). Why do you take a deposit? A deposit is taken a week before you sign your Retail Franchise Contract with us. The deposit is a security bond for the building and contents. 12

13 How much is the deposit? Currently this is 5,000 + VAT. Is the deposit refundable? If we have not incurred any costs since you made your deposit, we will refund this in full if you decide not to proceed. However, please note that we will be incurring significant costs as we undertake background checks and arrange the legal documentation. If you decide not to proceed we will deduct these and any other costs incurred in relation to your purchase from the amount we refund to you. Does the deposit count towards my franchise fee? Yes, of course. 100% of the deposit counts toward your franchisee joining fee, once you go on to join the franchise. What documents do I sign to become a franchisee? Once you are sure that you want to go ahead and have the funding, you need only sign two copies (one for you and one for us) of our Franchise Agreement. This contains all of our terms and conditions. I ve never signed a big contract before, how can I be sure it s safe to sign? We will give you advance copies of the Franchise Agreement and recommend that you review it with the advice of a specialised franchise solicitor affiliated to the British Franchise Association. We are happy for you to do this but please note that the contract is non-negotiable. What are the main things that the franchise agreement gives me? The franchise agreement contracts us to provide you with all the things that we have promised in discussing the franchise with you. The most important of these are: the provision of set up and ongoing support; the provision of training; the use of our system and our brand; the right to trade with our business; ownership of the business for the term protected in the agreement. How does it protect me? It protects you by ensuring that we deliver everything that we have promised you and by guaranteeing that you are free to develop your new business without us changing the rules at any time. What are the main things that the franchise agreement gives you? Very similar things. It contracts that you will provide us with everything that you have promised us, such as a franchise fee, paying your ongoing fees on time, providing a level of service that meets our standards, your commitment to our business and that you will do your best to perform and act appropriately with our brand. Because all franchisees sign the same agreement, it also gives us the assurance that all our franchisees will behave in the same reputable way which is also in your interest. How long do I have to start the business after signing the agreement? You must start trading within 2 months of receiving your training. How long is the franchise agreement? The agreement is an standard 5 year term. 13

14 Can I renew the franchise agreement? The Franchise Agreement will run first for 5 years and then automatically renew for another 5 years as long as you have met basic standards and performance. However, we do envisage that we will enter into new agreements on new terms with franchisees that continue to perform well when their first franchise agreement has expired. So a good franchisee would be likely to keep the franchise well into the future. What are the main responsibilities I have in the franchise agreement? You must: pay the appropriate fees; pass training; commence trading in a reasonable time from signing; give your full commitment to the business; be open for business during reasonable hours; follow our system and comply with our Operating Manual; keep our standards; use our marketing materials and uniforms; respect the brand; act within the law; meet basic minimum performance levels; recruit and maintain the appropriate number of staff; not reveal our confidential information to others or competitors; not compete with the brand; use preferred suppliers; not transfer the agreement without our approval. What are the terms for me to renew? They are fairly simple and relatively easy to achieve. You must perform to our standards, continue to follow our system, not owe us or any of our suppliers any unpaid debts and remain ethical and legal in your operation before renewal. We may also ask you to be trained to the current standard of other franchisees. Do I have to pay anything to renew? The agreement allows us to recover any reasonable legal and admin fees for renewal on any 5 year automatic renewal. Upon the provision of a new agreement after the expiry of your first agreement, we may ask you to cover the legal costs of drawing up a new agreement - but you will never be charged any additional franchise joining fees upon any renewal. Are there ongoing minimum performance targets? Yes as part of your agreement we have service levels and critical service levels that are related to each site individually and will be disclosed to you before signing any agreement, an example of the service levels are below: Turnover Mystery Shopper Scores Food Stock Results Wet Stock Results Financial Audit Customer Complaints What territory do I get? Our franchise model is not based on territories but rather on existing pubs across a wide geography. When we discuss specific pub opportunities we can then disclose to you which sites will then suit your geographical preference. How is it protected? As this is not a territory based business there are no trading boundaries to protect. In certain circumstances we may have other trading businesses within the same customer catchment area as your pub. We will also inform you of any planned investment in our other local businesses or any plans for a new build pub in the area that are known to us at the time. 14

15 Can I grow my business by taking on more pubs? Yes, we encourage multiple operators and would be happy to discuss this with you. What terms does the agreement impose on paying ongoing fees? The ongoing business fee is 1.5% of turnover which is collected quarterly. Can I be involved with a competing business? No. We want our franchisees to be fully committed to our business, so we don t feel it would be appropriate for a franchisee to run a competing business, for example, another local pub. Can I sell the business? Yes (as long as the agreement hasn t been terminated). We must approve the buyer as you would expect, so that we are sure that they will be a suitable franchisee. You are free to sell the business at any time and we will happily support you in doing so, as it is in our interest to have franchisees that are trying to build value into their businesses to ready them for a good profitable sale. What if something happens to me? If a franchisee dies or is incapacitated then one of these things can happen. One, your family proposes another member of the family to take over the business. Or two, we allow your family to sell the business as long as we approve the buyer we can help with the sale and even provide an interim manager (at a fee) to run the business until it is sold, so that it doesn t lose any of its value before sale. Can I pass the business to my children? Yes, as long as we approve them as suitable franchisees. 15

16 Financial information What financial help is available to invest in a franchise? Ours is a relatively low-investment franchise, so we would expect the majority of franchisees to fund this opportunity without borrowing. However, if finance is required, you will have several routes open to raise the investment. Our recommendation would be that you approach the franchise department of a local bank, who would normally expect you to invest a stake of at least 50%. What will it cost me to join? Current Franchise Package Fees can be found on the following pages. Do the figures include VAT? No. We have to charge VAT and charge it separately on top, like any other franchise in our industry. Are there any other ongoing fees? You will pay a business fee of 1.5% of turnover which is collected quarterly. What is in the Franchise Package? The package is very comprehensive and includes: training, certification, computer equipment, uniforms, software, consumables, manuals, stationery and more. Are there any hidden costs? No. We aim to be totally transparent and will clearly show you all the costs that you can expect when running this business both those that you pay through us (above) and those that you are likely to face locally. How much profit will I make? This very much depends on your own efforts and costs it is your own business. As with any business, the returns you make in your own pub will be down to your own hard work and effort. Are any of the figures that you will show me guaranteed? No. However, they are real figures from our company-owned pubs - so you can make an informed decision about the potential viability of this business for you. 16

17 Franchise Summary Key points of the Marston s Pub Franchise: Franchise Agreement 5 year term and renewable for a further 5 years. Initial Franchise Package Cost 15,000 plus VAT payable on commencement includes training and equipment packages detailed earlier. Deposit Payment Turnover Share Profit Share Continuing Business Fee 5,000 plus VAT (will be deducted from the Initial Franchise Package Cost above) The Turnover Share is calculated against the total monthly turnover generated at the pub. The Share is calculated at 20% and deposited on a monthly basis. The Profit Share is calculated against the Franchisee Profit Contribution as detailed on the Marston s Operating Statement (P&L) for the pub. Share is calculated at 20% and deposited on a quarterly basis This is 1.5% of the total turnover. It is charged quarterly in arrears. This is for the future development of the franchise. All fees and terms are subject to change prior to being awarded the franchise, at the discretion of Marston s Pub Franchise. 17

18 Selling The Business Can I sell the business? Yes. When? Whenever you like, although we would advise you not to sell the business in the first year of trading as it won t have had time to develop any value and may thus be worth no more (or even less) than you paid for it. Generally, the longer that you run the business profitably and the more it grows the higher the value when you sell it. How much will it be worth? This will depend on the market value at the time. We would suggest that an independent valuer assesses the business to establish a realistic value. We would be able to recommend a valuer to you. What s the process? You should let us know quite early on, once you have decided to sell. We can help you find a buyer (one of the applicant franchisees we are dealing with might want to buy a going concern if one is available) and will work with you so that you get the best price. How much does Marston s Pub Franchise take if I sell it? We charge the new franchisee (the buyer) a training and induction fee. We will only charge you for legal & admin fees associated with the transfer of the business. Can I sell it to anyone? You can sell it to anyone that we approve as a franchisee that intends to be committed to and work in the business. Will you support me in selling the business? Yes. It is in our interest to ensure that you get the best price, that the buyer would make a good franchisee and that both sides are happy in the sale. 18

19 Your Next Steps There are a number of steps you will need to take before formally applying for a franchise with Marston s. Franchising is a long-term commitment and as such, we both need to feel comfortable with our decisions. Consider all Aspects Review this document thoroughly and be sure to seek answers to any questions you may have. Be totally sure it is what you want to do it is a serious commitment. Be sure you have the prerequisites for being a Franchisee it is hard work, involving working long hours, particularly during the early stages. Be sure that your partner(s) is behind you. Seek professional advice speak to your bank for an indication of financial support (subject to more details) if that is required, talk to your accountant etc. We suggest that you take legal advice a little further down the line. Be sure that you fully understand your responsibilities. Initial Commitment To proceed to the next stage, you will be asked to sign an offer letter, sign a Confidentiality Agreement and pay a deposit. Please remember that if you decide not to proceed after this stage the deposit is refunded less any costs incurred in processing your application, and you may not receive any of the deposit back if we have begun the work on preparing your pub. Assuming you proceed with the purchase the deposit will of course be fully deducted from the Initial Franchise Fee. Payment of the deposit will secure your chosen franchise pub for a 60 day period whilst you and we - carry out further research. Detailed Business Plan You and your advisors will ideally prepare a detailed business plan for the agreed location. We will provide every assistance to you in its preparation, and will provide you with details of a BFA affiliated consultant to assist in its preparation. You and your advisors will need to feel comfortable with the plan, and we will want to review the contents. It will then need to be presented to your bank if you require additional funding. Franchise Lawyer If the previous steps have been satisfactorily progressed, you may now wish to seek the advice of a specialist Franchise Lawyer before finally committing and signing the Franchise Agreement. See the British Franchise Association s website for a full list of BFA Affiliated Franchise Lawyers. 19

20 British Franchise Association Code of Ethics 1. Definition of Franchising 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. The franchisor grants its individual franchisees the right, and imposes the obligation, to conduct a business in accordance with the franchisor s concept. The right entitles and compels the individual franchisee, in exchange for a direct or indirect financial consideration, to use the franchisor s trade name, and/or trade mark and/or service mark, know-how(*), business and technical methods, procedural system, and other industrial and/or intellectual property rights. This is supported by the continuing provision of commercial and technical assistance, within the framework and for the term of a written franchise agreement, concluded between parties for this purpose. (*) Know-how means a body of non-patented practical information, resulting from experience and testing by the franchisor, which is secret, substantial and identified; secret means that the know-how, as a body or in the precise configuration and assembly of its components, is not generally known or easily accessible; it is not limited in the narrow sense that each individual component of the know how should be totally unknown or unobtainable outside the franchisors business; substantial means that the know-how includes information which is of importance for the sale of goods or the provision of services to end users, and in particular for the presentation of goods for sale, the processing of goods in connection with the provision of services, methods of dealing with customers, and administration and financial management; the know-how must be useful for the Franchisee by being capable, at the date of conclusion of the agreement, of improving the competitive position of the franchisee in particular by improving the Franchisee s performance or helping it to enter a new market. identified means that the know-how must be described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality; the description of the know-how can either be set out in the franchise agreement or in a separate document or recorded in any other appropriate form. 20

21 2. Guiding Principles 2.1 The Franchisor is the initiator of a franchise network, comprising itself and its individual franchisees, of which the franchisor is the long-term guardian. 2.2 The obligations of the franchisor: The franchisor shall: have operated a business concept with success, for a reasonable time and in at least one pilot unit before starting its franchise network be the owner, or have legal rights to the use of its network s trade name, trade mark or other distinguishing identification provide the individual franchisee with initial training and continuing commercial and/ or technical assistance during the entire life of the agreement. 2.3 The obligations of the individual franchisee: the individual franchisee shall: devote its best endeavours to the growth of the franchise business and to the maintenance of the common identity and reputation of the franchise network supply the Franchisor with verifiable operating data to facilitate the determination of performance and the financial statements necessary for effective management guidance, and allow the Franchisor, and/or its agents, to have access to the individual franchisee s premises and records at the franchisor s request and at reasonable times not disclose to third parties the know-how provided by the franchisor, neither during nor after termination of the agreement 2.4 The ongoing obligations of both parties: Parties shall exercise fairness in their dealings with each other. The Franchisor shall give written notice to its individual franchisees of any contractual breach and, where appropriate, grant reasonable time to remedy default. Parties should resolve complaints, grievances and disputes with good faith and goodwill through fair and reasonable direct communication and negotiation. 3. Recruitment, Advertising and Disclosure 3.1 Advertising for the recruitment of Individual Franchisees shall be free of ambiguity and misleading statements. 3.2 Any publicly available recruitment, advertising and publicity material containing direct or indirect references to future possible results, figures or earnings to be expected by individual franchisees, shall be objective. 21

22 3.3 In order to allow prospective individual franchisees to enter into a binding document with full knowledge, they shall be given a copy of the present Code of Ethics as well as full and accurate written disclosure of all information material to the franchise relationship, within a reasonable time prior to the execution of these binding documents. 3.4 If a franchisor imposes a pre-contract on a candidate individual franchisee, the following principles should be respected: prior to the signing of any pre-contract, the candidate individual franchisee should be given written information on its purpose on any consideration he may be required to pay to the franchisor to cover the latter s actual expenses, incurred during and with respect to the pre-contract phase; if the franchise agreement is executed, the said consideration should be reimbursed by the franchisor or set off against a possible entry fee to be paid by the individual franchisee the pre-contract shall define its term and include a termination clause the franchisor can impose non-competition and/or secrecy clauses to protect its know-how and identity 4. Selection of Individual Franchisees A franchisor should select and accept as individual franchisees only those who, upon reasonable investigation, appear to possess the basic skills, education and personal qualities and financial resources sufficient to carry on the franchised business. 5. The Franchise Agreement 5.1 The Franchise agreement should comply with the National law, European community law and this Code of Ethics. 5.2 The agreement shall reflect the interests of the members of the franchised network in protecting the franchisor s industrial and intellectual property rights and in maintaining the common identity and reputation of the franchised network. All agreements and all contractual arrangements in connection with the franchise relationship should be written in or translated by a sworn translator into the official language of the country the individual franchisee is established in, and signed agreements shall be given immediately to the individual franchisee. 5.3 The franchise agreement shall set forth without ambiguity, the respective obligations and responsibilities of the parties and all other material terms of the relationship. 22

23 5.4 The essential minimum terms of the agreement shall be the following: the rights granted to the franchisor the rights granted to the individual franchisee the goods and/or services to be provided to the individual franchisee the obligations of the franchisor the obligations of the individual franchisee the terms of payment by the individual franchisee the duration of the agreement which should be long enough to allow individual franchisees to amortize their initial investments specific to the franchise the basis for any renewal of the agreement the terms upon which the individual franchisee may sell or transfer the franchised business and the franchisor s possible pre-emption rights in this respect provisions relevant to the use by the individual franchisee of the franchisor s distinctive signs, trade name, trade mark, service mark, store sign, logo or other distinguishing identification the franchisor s right to adapt the franchise system to new or changed methods provisions for termination of the agreement provisions for surrendering promptly upon termination of the franchise agreement any tangible and intangible property belonging to the franchisor or other owner there of 23

24 The Code of Ethics and The Master-Franchise System This Code of Ethics shall apply to the relationship between the franchisor and individual franchisees and equally between the master franchisee and individual franchisees. It shall not apply to the relationship between the franchisor and master-franchisees. British Franchise Association Code of Ethical Conduct: Extension and Interpretation This Extension and Interpretation forms an integral part of the Code of Ethical Conduct adopted by the British Franchise Association and to which its members adhere. Application 1. This Code of Ethical Conduct forms part of the membership agree ment between the British Franchise Association and its member companies. It does not form any part of the contractual agreement between franchisor and franchisees unless expressly stated to do so by the franchisor in the franchise agreement. Neither should anything in this Code be construed as limiting a franchisor s right to sell or assign its interest in a franchised business. Disclosure 2. The objectivity of recruitment literature (Clause 3.2) refers specifically to publicly available material. It is recognised that in discussing individual business projections with franchisees, franchisors are invariably involved in making assumptions which can only be tested by the passage of time. Confidentiality 3. For the generality of this Code of Ethical Conduct, know-how is taken as being as defined in the European Block Exemption to Article 85 of the Treaty of Rome. However for the purposes of Article 3.4 of the European Code of Ethics it is accepted that franchisors may impose non-competition and secrecy clauses to protect other information and systems where they may be reasonably regarded as material to the operation of the franchise. 24

25 Contract Language 4. Franchisors should seek to ensure that they offer to franchisees contracts in a language in which the franchisee is competent. Contract Term 5. In suggesting in Article 5.4 of the European Code of Ethics that the minimum term for a franchise contract should be the period necessary to amortize those of a franchisee s initial investment which are specific to the franchise, it is recognised: 1. that for a minority of the largest franchise opportunities amortizing initial investments may not be a primary objective for the franchisee. In such cases the objective should be to adopt a contract period which reasonably balances the interests of the parties to the contract. 2. that this section could be subject to national laws concerning the restraint of trade and may need to be met through renewal clauses. Contract Renewal 6. The basis for contract renewal should take into account the length of the original term, the extent to which the contract empowers the franchisor to require investments from the franchisee for relinquishment or renovation, and the extent to which the franchisor may vary the terms of a contract on renewal. The overriding objective is to ensure that the franchisee has the opportunity to recover his franchise-specific investments, both initial and subsequent ones, and to exploit the franchised business for as long as the contract persists. Adoption 7. This Code of Ethical Conduct comprising this Extension and Interpretation and the European Code of Ethics for Franchising was adopted by the British Franchise Association, replacing its previous Code of Ethics on 30th August 1990, subject to a transitional period for full compliance ending 31st December During the transitional period members of the Association are nonetheless required to comply at least with the Code of Ethics previously in force. In October 1991 the Association agreed with the European Franchise Federation some amendments to the Code agreed in August 1990 and at the same time extended the transitional period to full compliance to 31st December

26 Franchising Code of Ethics Introduction This Code of Ethical Conduct in franchising takes as its foundation the Code developed by the European Franchise Federation. In adopting the Code, the Federation recognised that national requirements may necessitate certain other clauses or provisions and delegated responsibility for the presentation and implementation of the Code in their own country to individual member National Franchise Associations. The Extension and Interpretation which follows the European Code has been adopted by the British Franchise Association, and agreed by the European Franchise Federation, for the application of the European Code of Ethics for Franchising by the British Franchise Association within the United Kingdom of Great Britain and Northern Ireland. European Code of Ethics for Franchising Preface The European Franchise Federation, EFF, was constituted on 23rd September Its members are national franchise associations or federations established in Europe. The EFF also accepts affiliates, i.e. non-european franchise associations or federations, and other professional persons, interested in or concerned with franchising. Affiliates have no voting rights and cannot be appointed officers of the EFF. The objectives of the EFF are, among others, the ongoing unbiased and scientific study of franchising in every respect, the co-ordination of its members actions, the promotion of the franchise industry in general and of its members interests in particular. The EFF also comprises a Legal Committee, composed of two lawyers from each national member association or federation who are highly qualified in franchise matters. The EFF has, furthermore, installed a Franchise Arbitration Committee which is at the disposal of parties preferring to submit their disputes for the latter s determination. The evolution and the ever-growing importance of franchising in the EC economy as well as the EC Block Exemption Regulation for franchise agreements, entered into force on 1st February 1989, prompted the EFF to revise its existing Code of Ethics. This Code of Ethics is meant to be a practical collection of essential provisions for fair behaviour for franchise practitioners in Europe, but not to replace possibly related national or EC law. This Code of Ethics is the end-product of work carried out by the European Franchise Federation and its member associations (Austria, Belgium, Denmark, Germany, France, Italy, the Netherlands, Portugal and the United Kingdom) in conjunction with the Commission of the European Community. It shall replace the previous European Code of Ethics as well as all national and regional Codes existing at that time in Europe. By subscribing to the EFF, its members accept the European Code of Ethics and undertake not to delete or amend it in any way. It is, however, recognised that national requirements may necessitate certain other clauses or provisions and, providing these do not conflict with or detract from the Code and are attached to the Code in a separate document, permission to do this will not be withheld by the EFF. By adhering to the EFF its members commit themselves to impose on their own members the obligation to respect and apply the provisions of this Code of Ethics for Franchising. 26