Link issue12 Final One - SCLG

Legal 39
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the ability to someone else to use his
key assets i.e. his brand and his
business processes. If proper controls
are not put in place, the franchisor
opens himself up to not being able to
stop possible abuses especially in an
area such as the Middle East.
And for the franchisee, the costs
involved in taking on a franchise,
especially when we are talking about a
master franchise agreement (where
the franchiser will grant the master
franchisee the right to open units and
sell but also to sub-franchise to other
parties so that he then manages
various sub-franchises in addition to
running his own units), the costs for
the franchisee can be substantial.
Under a master franchise agreement,
often the franchisee will take on a
contractual responsibility for a long
time, often ten to twenty years in
duration. As well as having to pay quite
a substantial upfront fee, the
franchisee will therefore be tied into a
contract which it cannot get out of for
a very long time with regular costs
arising each and every year, in addition
to the operating costs of running the
franchise units themselves.
So, with these kind of risks and
concerns flying about, what should you
do? As ever, the answer is pretty
simple, write it down! There must be a
contract which should reflect a
balanced approach where both sides
know who does what, when, for how
much and what happens to the
intellectual property rights.
Doing your homework
Remember to check out the local legal
situation. For example, did you know
that a franchise arrangement can be
considered an agency agreement under
UAE law? This means that there are
specific legal implications in the
Middle East which can make it difficult
for a franshisor to remove an
appointed franchisee and, under the
agency law here, they might have to
pay to get rid of them.
Stuff to look out for in the contract
Both sides should make sure that the
contract gets checked out and make
sure that it says what you think it
should say or make sure you re-address
Mark Hill,
therightslawyers
Dubai
the deal so that it works for you. After
you sign, it is simply too late.
• How long does the contract last for
and when can it be renewed?
Remember as franchisee you must
balance your investment against how
long you can work the licence.
So if you are going to spend millions
in the first year but only have a one
year appointment, you are simply
asking for trouble.
What is the territory being given and
is it an exclusive appointment (i.e. no
else gets the same thing in the same
territory)?
• What restrictions are there on selling
the franchise on to a third party?
Sometimes the franchisee simply
cannot get out of the arrangement.
• Which country's law governs the
arrangement and do the parties have
to go to court or is there a dispute
resolution mechanism which tries to
prompt discussion and arbitration?
• How can the contract be terminated
i.e. this is the get out for the
franchisor but also it is an area of great
risk for the franchisee.
• And when the contract is terminated,
what happens then e.g. do stocks get
returned, are they paid for, is there
any compensation for goodwill built up
during the operation of the franchise?
• What support is being provided for by
the franchisor? If it isn't in the
contract, it doesn't exist.
• Remember to check the trade mark
and other intellectual property rights
provisions carefully. This is an area
where problems constantly arise in
franchise arrangements.
• Oh yeah, and don't forget the money!
Who has to pay what when?
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