Putting Things Right: How to Respond To a Breach Notice

05/04/2018 08:00 | Start a business

Responding to a breach notice as a franchisee

Franchises offer entrepreneurs the chance to be part of a tried and tested business model without taking some of the risks associated with business ownership. A franchise agreement is signed which governs the terms of the relationship between the franchisor and franchisee. But, what happens if either party breaches the franchise contract during the term?

Both parties are within their rights to issue a notice, particularly if the breaches affect the franchise system. So, if you're a franchisor or a franchisee, it's essential that you understand how to raise a breach notice as well as knowing how to respond to one.

While no one expects it to happen to them, you should always be prepared with the relevant franchise information in case a breach should occur.

Which law governs franchising in the UK?

There are currently no statutory regulations that govern franchise businesses in the UK. However, as franchisor and franchisee enter into a franchise agreement to formalise the relationship, contract law tends to be applied in the event of any issues arising. This is why its so important to consult a solicitor that specialises in franchising before you sign on the dotted line.

Does the British Franchise Association (bfa) have any legal influence?

No, as the bfa is a voluntary self-regulatory body for the UK franchise industry, it does not hold any legal authority. What it does have is the Code of Ethical Conduct, however. All members of the bfa are expected to comply to the code entirely, and although it is not legally enforceable, it does set standards and guidelines for franchisor and franchisee to follow in the event of a breach.

Examples of breaches

There are many reasons why a franchisor could issue a notice for breach of the franchise agreement. Here are some examples:

  • the franchisee fails to make the required payments due under the agreement
  • the franchisee doesnt start trading by a specific date
  • the franchisee provides false or misleading information
  • the franchisee doesnt meet the expected performance levels
  • the franchisee offers poor quality service which results in customer complaints and fails to improve the service

So, how does a franchisor issue a breach notice?

The Franchising Code of Conduct sets of clear guidelines for the requirements of a breach notice. If youre a franchisor issuing a notice to your franchisee on the basis of a breach of the franchise contract you must ensure that you include the following:

  • your intention to terminate the franchise agreement as a result of the violation in question;
  • how your franchisee can remedy the breach; and
  • allow a reasonable period for your franchisee to put things right (this period does not have to exceed 30 days).

Despite these guidelines being in place for franchisors to follow, if youre a franchisee, you should also include the same information when issuing a notice if you believe they are in breach of the franchise agreement.

How do franchisees respond to a breach notice?

Naturally, being on the receiving end of a breach notice can be worrying, but to ensure that your relationship with the franchisor is not impacted, its best to deal with the situation effectively and efficiently.

Here are some tips on how to respond:

  • Act quickly
    Whether you agree with or wish to dispute the breaches outlined in the notice, it's important to respond as promptly as possible. You will need to provide reasoning as to why you're challenging the violation if applicable. You may wish to seek professional advice from a specialist franchise solicitor too.
  • Review the proposed steps to remedy the breach
    The breach notice will also include measures that the franchisor expects you to take to remedy the situation. Make sure that you review these carefully to ascertain if the proposed steps are achievable and reasonable. If they are, then you should set about putting actions in place to follow the steps within the specified period. If, however, you oppose the breach, you will need to respond to the franchisor explaining why you wont be taking any action.
  • Be open and honest
    There will be an explanation of why and how the breach has occurred. To safeguard your relationship with the franchisor, its recommended that you provide some context regarding the breach. This will allow the franchisor to gain a better understanding of how your franchise is run and provides an excellent opportunity for any issues with the franchise system to be discussed openly and honestly. Done in the right way, this can build a relationship of trust with the franchisor.
  • Stay composed
    Its not nice to be at the receiving end of a notice for breaching the franchise contract. But, you must remember that the franchisor is just defending the reputation and consistency of the brand, from which you ultimately benefit. If there is a reasonable explanation for the breach or the issue can easily be rectified, then there is no need to react negatively to the situation. The best way to deal with a breach is to stay calm and keep your integrity.

What is the franchisor has breached the franchise agreement?

Franchise agreements are prepared by the franchisor and tend to be heavily weighted in their favour. This means that the rules and obligations expected of the franchisor are far less than those the franchisee must adhere to. However, if you feel that the franchisor has failed to observe an essential condition of the contract, then you're justified in issuing a breach.

The types of breaches that a franchisor may be guilty of include failing to offer adequate training, offering insufficient support or neglecting to provide an operation manual. All of these elements are crucial to the success of a franchise system, and if they're absent, you're within your rights to request that the franchise agreement is terminated.

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