Confidentiality Letter

A confidentiality letter/agreement will usually be provided to a Franchisee for signature before the Franchisor releases any confidential information or documentation (including the Franchise Agreement itself). It normally states that the Franchisee acknowledges the importance of maintaining confidentiality which is an ongoing obligation upon the Franchisee even if he/she does not proceed with the Franchise and this requirement often extends to employees and agents (ie professional advisers) of the Franchisee and sometimes also to his/her family members.

There are usually few exceptions such as information that subsequently becomes public knowledge or information that may require to be disclosed to a Court of Law or another regulatory body.

The Franchisee should have such an agreement reviewed by a lawyer as they often contain a restriction (known as a restrictive covenant) preventing the Franchisee from becoming involved, interested or engaged in any competing or similar business to the Franchisor’s business and this can be for six months (and sometimes even longer) if the Franchisee does not proceed with the Franchise.

Franchise Agreements (non-negotiability)

A Franchise Agreement is rarely capable of being revised by a Franchisee and the Franchisor is likely to state that its Agreement is non-negotiable. The reason for this is that the Franchisor has spent a lot of time, effort and money in developing a system which understandably it wants and requires to protect. The same system will be adopted by all of its franchisees and it is important to the Franchisor that is done uniformly and without changes being made to the Agreement to allow for consistency in the operation of the business.

The Agreement can be viewed as being very one-sided and favouring the Franchisor but in practice it is necessary to ensure that all franchisees comply with their obligations and that the system is followed by each of them in the same way.

Some Franchisors will allow minor variations to be recorded in a personal side letter to the Agreement which will only be applicable to that specific Franchisee as long as he/she operates the Franchise. An example of this may be where the Franchisee is permitted to retain a part-time job elsewhere if the Franchisor perceives that it will not affect the operation of the Franchise business. Accordingly the obligation on the Franchisee to devote his/her full time and attention to the Franchise not to be involved in any other business (provided it does not compete) will be modified in such a side letter.

For the full list of bfa franchise accredited lawyers click here