The sales process will need to be adapted. All
sales documentation will need to be amended to comply with the
legal and regulatory requirements. Not only in those jurisdictions
which have franchise specific laws, but also those that impose a
pre-contractual duty of care / duty of good faith, such as
Germany.
Regulation of the
sales process
Countries such as the USA,
Australia, France, Spain, Italy, Belgium, Sweden, Brazil, China and
Vietnam take a similar approach to regulating the sales process and
require set form pre-contractual disclosure. Although, the detailed
requirements vary. Key disclosure issues include the how and when
the disclosure must be made, mandatory cooling off periods before
the deal can be finalised, the contents of the sales documentation,
the basic details of the franchisor, a description of the franchise
and of the brand, financial information about the franchisor,
details of the franchise network, details of any litigation,
details of all payments due, such as the initial fee, initial
investment and continuing fees, claims about the earning likely to
be made, details of any restrictions on the franchisee,
descriptions of the obligations that the parties owe towards one
another, details of any purchase ties, details of the franchisor’s
intellectual property rights, details of financing arrangements
offered by the franchisor and details of any exclusivity
granted.
The consequences of failure
to comply with the disclosure requirements vary somewhat. It
generally entitles the franchisee to walk away from the agreement
without restrictions, provided it acts within a reasonable period
of entering into the agreement. The franchisee can also sue the
franchisor for damages. Some jurisdictions also impose fines for
failure to comply. Certain jurisdictions enable the government to
take the initiative although most simply grant the right to the
franchisee.
Despite a general similarity
of approach, no two countries have identical pre-contractual
disclosure requirements. These subtle but important differences can
be easily overlooked and then result in difficulties for
franchisors. Detailed practical and legal advice at an early stage
from expert franchise lawyers will make a big difference.
Regulation of
contractual terms
Franchise specific laws in
countries such as the USA, Australia, Italy, Belgium, China,
Vietnam, Malaysia and Indonesia impose mandatory contractual terms
in the franchise agreement. These often include a minimum term, a
duty of good faith, restrictions on termination, restrictions on
post termination non competition clauses and so on. Any retail or
leisure company considering international franchising must
carefully consider the impact of these mandatory provisions on
their proposed business model before they become committed to doing
a deal in a specific market, as they may substantially affect the
commercial terms that they can offer.
Registration
requirements
It is essential that
registration requirements in countries such as the USA, China,
Indonesia, Malaysia and Spain are complied with. Some jurisdictions
require the franchisor to register only relevant details whilst
others require registration of all the documentation. In developing
markets this is to enable the government to monitor franchisors
doing business in the market whilst in more developed economies
(such as the USA and Spain) it is to ensure transparency and
maintain a certain level of quality.
In some countries, there are
multiple registration requirements. For example, franchisors in
China who sell franchises in just one province, must file the
information at the local office of the MOFCOM of that province,
whereas for cross-province franchising the papers have to be filed
with MOFCOM itself.
For more information please contact your usual Field Fisher Waterhouse
contact.