The franchise agreement is the contract at the centre of every franchise. It grants the franchisee the right to trade under the brand, sets out what each party must do, says how much is paid and when, and decides what happens when the relationship ends. This guide explains what a franchise agreement is, the clauses most UK agreements contain, how the law treats them and what to know about templates and reviews. If you are a prospective franchisee, our guide on what to ask for before you sign a UK franchise agreement covers the checks to make before signing.
What is a franchise agreement?
A franchise agreement is a legally binding contract between a franchisor and a franchisee. Pinsent Masons describes it as the contract that defines the rights and obligations of both parties, and notes that franchise agreements are typically long-term and relational, needing ongoing cooperation and trust. HMRC’s business manual describes the core deal: the franchisee gets the use of the franchisor’s system and management back-up for a set period in return for an initial fee and continuing fees.
The agreement works alongside the operations manual. The agreement sets the legal framework and the manual sets out how the business is run day to day, and most agreements require the franchisee to follow the manual as it is updated. TLT, a law firm, notes that the franchise agreement also licenses franchisees to use the franchisor’s intellectual property, so no separate formal licence is needed.
Franchise agreement law in the UK
There is no franchise-specific law in the UK. Pinsent Masons explains that franchise arrangements are governed mainly by contract law, competition law and intellectual property law, with self-regulation through the British Franchise Association (BFA). Some legal points shape almost every agreement:
- No registration. Franchise agreements do not need to be registered with any authority, and there is no legal requirement for them to be in English, although the BFA code requires agreements to be in a language the franchisee is competent in.
- No statutory disclosure document. The law does not require one, but BFA member franchisors must give full and accurate written disclosure of material information within a reasonable time before binding documents are signed.
- Good faith and discretion. English law has no general duty of good faith, but Pinsent Masons notes that courts increasingly recognise duties of honesty and fair dealing in long-term relational contracts, and that where a franchisor has a contractual discretion it must exercise it honestly, rationally and for a proper purpose.
- Competition law. Franchise agreements are vertical agreements. The Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022 sets out the restrictions allowed. Fixing a minimum or fixed sale price is a hardcore restriction, though recommended and maximum prices are allowed.
- Scotland. TLT notes there are minor differences in legislation if you grant franchises in Scotland, so the agreement needs updating for Scottish franchisees.
Key clauses in a franchise agreement
Every franchise agreement is different, but the same main sections appear in most of them. The table lists them with what each one usually deals with.
| Clause | What it usually covers |
|---|---|
| Grant and territory | The right to trade under the brand, where, and whether the territory is exclusive |
| Term and renewal | How long the franchise lasts and the conditions for renewing it |
| Fees | Initial fee, ongoing management service fee or royalty, marketing fund contribution, when they are paid |
| Franchisor’s obligations | Initial training, ongoing support, marketing, updates to the system |
| Franchisee’s obligations | Following the operations manual, brand standards, reporting, insurance, approved suppliers |
| Intellectual property | Use of the trade marks and know-how, and who takes action against infringers |
| Confidentiality | Protecting the manual, know-how and business information |
| Restrictive covenants | Non-compete restrictions during the term and after it ends |
| Sale and transfer | Whether the franchisee can sell, and the franchisor’s right to approve a buyer |
| Termination | When either side can end the agreement and what happens next |
| Disputes | Mediation, arbitration or court, and the governing law |
Term and renewal
There are no statutory limits on the length of a franchise agreement. Pinsent Masons says terms typically range from five to twenty-five years, with most lasting five to ten years depending on the type of business and how much the franchisee invests. Renewal terms are negotiated, and are often subject to performance criteria or to signing the franchisor’s updated agreement. It is worth reading the renewal clause as carefully as the grant, because a short term without a clear right to renew can make it hard to recover a large investment.
Fees
The agreement should state every fee, how it is calculated and when it is paid. HMRC describes continuing fees calculated as a percentage of turnover, a mark-up on purchases from the franchisor or a fixed payment per outlet. Our guide to franchise fees, royalties and the marketing fund goes into each type.
Restrictive covenants
Non-compete clauses are allowed, but Pinsent Masons explains that they must be reasonable in scope, duration and geography to be enforceable. The block exemption order adds conditions. A non-compete obligation during the agreement that is indefinite or longer than five years falls outside the exemption, and a post-term restriction is only covered where it relates to competing goods or services, is limited to the premises the franchisee operated from, is indispensable to protect know-how the franchisor transferred and lasts no more than one year after the agreement ends. These clauses are among the most argued over when a franchise ends, so our guide to planning your exit from a franchise covers them from the franchisee’s side.
Intellectual property
The brand is the main thing a franchisee pays for, so the agreement must set out how the trade marks and know-how can be used. TLT recommends that franchisors register their trade marks, and any patents or designs, with the Intellectual Property Office, and reserve infringement action rights to themselves in the agreement. GOV.UK says a UK trade mark lasts 10 years and must be renewed every 10 years.
Termination and transfer
Termination clauses list what counts as a breach, any notice period and chance to put things right, and what the franchisee must do after the agreement ends, such as stopping use of the brand. Business Gateway warns franchisees that a franchise can only be sold to a buyer the franchisor approves, and that leaving early can be difficult. TLT also points franchisors to the Transfer of Undertakings (Protection of Employment) Regulations 2006, which could apply if a franchisee’s business transfers to the franchisor when the agreement ends.
Personal guarantees
Pinsent Masons notes that both franchisors and franchisees are usually private limited companies, and that in some sectors franchisors ask the directors or shareholders behind a franchisee company to sign personal guarantees. That makes them personally liable for the franchisee’s obligations, so read any guarantee as closely as the main agreement.
Franchise agreement templates
Searching for a franchise agreement template or a sample franchise agreement is a sensible way to see what one looks like, and the IPO publishes a free skeleton licence and licensing checklists that cover some of the same ground. A franchise agreement has to fit your fees, territories, support, supply arrangements and exit terms, though, and it has to comply with competition law. The IPO itself recommends professional legal advice before entering into any licence. For a franchisor, the agreement is one of the most important documents in the business, so use a template only as a starting point for a conversation with a franchise solicitor.
Getting a franchise agreement reviewed
Franchisees are usually offered the franchisor’s standard agreement, and many terms will not be open to change. A franchise agreement review by a specialist solicitor still matters: it tells you what you are committing to on fees, territory, renewal, restrictions and exit, and gives you the chance to ask about anything unclear before you sign. Franchisors should have their agreement reviewed regularly too, as the business and the law change. Our directory lists franchise agreement solicitors and franchise dispute solicitors, and franchise consultants can help a new franchisor decide the commercial terms before the lawyers draft them.
Sources
- Operating a franchise in the UK (Pinsent Masons, Out-Law guide, October 2025)
- Franchise laws, the UK market guide (TLT)
- BIM57601, Franchising: general (HMRC Business Income Manual, GOV.UK)
- Franchising (Business Gateway)
- The Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022, article 8, hardcore restrictions (legislation.gov.uk)
- The Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022, article 10, excluded restrictions (legislation.gov.uk)
- Licensing intellectual property (Intellectual Property Office, GOV.UK)
- Register a trade mark (GOV.UK)
