If you’re thinking about buying a franchise, you’ll no doubt have been handed a franchise agreement – probably thick with clauses, capital letters, and more pages than a short novel. It might even have come with assurances from the franchisor: “It’s a standard agreement. All our franchisees sign the same one.”

The issue is, just because it’s standard doesn’t mean it’s fair. And while the commercial side of franchising can be a great way to get into business with a proven model, the legal side is rarely one-size-fits-all.

I’ve reviewed many franchise agreements over the years, and here are ten things every first-time franchisee should check before signing on the dotted line.

But first, my overiding advice to anyone thinking of buying a franchise is: What are you getting for your money that you cannot just do yourself? In other words, when you spend a £1m on a McDonalds franchise, you get pretty much guaranteed sales from a worldwide top-tier company reputation. If the franchise you’re buying is, say, dance classes in a old peoples home or a window cleaning franchise – ask yourself could i just do this myself? Do you need the franchisor? Do they have a super unique system, or a big-name brand? Becuase I promise you, after you’ve done it for a year, you’ll think “I can do this myself without paying them X% of my income” but by then you’ll have restrictions stopping you from doing so!

Ok on with the list.

1. The term and your exit options

Most franchise agreements last between five and ten years. That’s a significant commitment. Sometimes the agreement will mention a right to renew, but often this is discretionary and subject to conditions. What you need to look for is whether you can exit the agreement before the end of the term, and what happens if you want to. Many agreements won’t allow you to simply walk away. You might have to sell the business, or offer it back to the franchisor. If the termination provisions are heavily skewed in the franchisor’s favour or don’t give you a clean exit route, you’re signing up for a one-sided relationship.

Check:

• How long is the initial term?

• What happens at renewal – do you have an automatic right or is it at the franchisor’s discretion?

• Can you exit early? Most agreements don’t allow you to just walk away. You might have to sell your business back to the franchisor or find a buyer they approve.

If there’s no clean break clause or the termination provisions are all one-sided, that’s a red flag.

2. Fees, fees and more fees

The initial franchise fee is just the beginning. Most franchise agreements include ongoing royalties, typically a percentage of your gross revenue, as well as other fees – marketing levies, training fees, software licences and even charges for support or “system updates”. It’s essential to work out the full financial picture. Are the fees based on revenue or profit? Is there a minimum amount you must pay even if you don’t trade? It’s not uncommon for franchisees to realise, too late, that their margins are much slimmer than expected once all fees are deducted. Some even find themselves operating at a loss just to meet minimum financial commitments.

Most franchise agreements include:

• A percentage of your monthly revenue (typically 5-10%) as an ongoing royalty

• A national or local marketing levy

• Training fees

• System upgrade or software licence costs

Make sure you understand:

• What’s fixed and what’s variable

• Whether fees are charged on turnover or profit

• If there are any minimum payment obligations (even if you don’t trade)

Some franchisees find themselves working long hours just to break even after fees.

3. Territory – is it protected or shared?

A common selling point for franchises is the promise of an exclusive territory. But what that means in practice can vary widely. You need to check whether the agreement actually gives you exclusivity, and if so, whether there are any carve-outs. For example, does the franchisor retain the right to sell online to customers in your area? Can they appoint other franchisees nearby if you don’t meet performance targets? In some cases, “exclusive” turns out to mean “as long as we don’t change our mind.” If you are building a local customer base, you don’t want to find yourself competing with the very brand you’ve bought into.

Sometimes:

• The franchisor can still sell online into your area

• They can open company-owned outlets nearby

• They can appoint other franchisees if you don’t meet performance targets

Ideally, your agreement should define your territory clearly, state it’s exclusive, and confirm the franchisor won’t undercut you directly or indirectly.

4. Personal guarantees and risk

Even if you’re trading through a limited company, many franchisors will ask for a personal guarantee. This means you – as an individual – are liable if things go wrong. That could include unpaid fees, damages or even legal costs. It’s vital to understand exactly what you’re being asked to guarantee. In some cases, we’ve managed to negotiate limits on the guarantee, such as a financial cap or a time limit. But left unchecked, a personal guarantee can mean your house and savings are at risk, even if your company is the one operating the business. Check for:

• Unpaid fees

• Lease costs

• Damages or legal costs

It’s important to understand exactly what you’re guaranteeing – and whether it’s capped or open-ended. In some cases, we’ve managed to negotiate limits or timeframes on those guarantees.

5. Restrictions after the agreement ends

Franchise agreements usually contain post-termination restrictions. These are designed to protect the franchisor’s brand and business model, but they can be very onerous. You may be prevented from running a similar business for a year or more after leaving the franchise, even in your own name. You may also be barred from using certain suppliers or working with staff or customers from your former franchise. These clauses need to be reasonable to be enforceable, but they are often drafted far too broadly. If your plan is to gain experience and then eventually go independent, you may find that’s not legally possible.

Restrictive covenants might prevent you from:

• Operating a similar business within a certain distance

• Using any supplier or customer lists

• Employing any staff from the franchise

While these can be legally enforceable if drafted properly, they also need to be reasonable. If you’re in a niche market, a blanket restriction could stop you trading at all.

6. The Franchisor’s obligations – what do they actually have to do?

One of the key benefits of a franchise should be support – access to training, guidance, systems and marketing. But not every agreement guarantees this in practice. Some simply say the franchisor may provide support or reserve the right to withdraw it. That’s not helpful if you’re relying on their experience and infrastructure. Look for clauses that clearly set out the franchisor’s obligations – initial training, regular updates, brand development, and ongoing assistance. If it’s vague or optional, you may be paying royalties without receiving much in return.

Look for detail on:

• Initial and ongoing training

• Marketing and brand development

• Operational support

• Product supply or tech systems

Some agreements are very clear. Others are vague or entirely discretionary, which means you’re legally entitled to far less than you thought you were buying.

7. Supply chains and purchasing obligations

In many franchises, you’ll be required to purchase products, equipment or software from approved suppliers – often the franchisor themselves. That can ensure consistency, but it can also limit your flexibility and increase your costs. If the franchise insists on a single supplier, and you have no say over pricing, your margins may be at the mercy of someone else’s commercial decisions. It’s worth asking whether you can use alternative suppliers, and whether the agreement includes any protections against unreasonable pricing or changes in supply terms.

Look out for:

• Higher costs compared to market rates

• Fewer options if something goes wrong

• A lack of independence in how you run the business

You’ll want to check whether:

• You’re locked into a sole supplier

• There are price protections

• You can request new suppliers or alternatives

8. Renewal and resale – how do you get out?

At some point, you may want to sell your franchise. But the agreement may restrict how and when you can do this. Often, you’ll have to offer the business to the franchisor first, or only sell to a buyer they approve. Some agreements even allow the franchisor to withhold consent unless the buyer meets specific criteria – which may not be commercially realistic. There might also be a resale fee or other costs associated with exiting the franchise. If your long-term plan includes building and selling the business, make sure the agreement allows that on fair terms.

Many franchise agreements include strict terms:

• You may need to offer the franchisor a right of first refusal

• They might control who you can sell to

• A resale fee might apply (sometimes 10% of the sale price)

Also, remember that buyers may not be willing to pay top dollar if the franchise agreement only has a short term left.

9. The Manual and the unseen obligations

Most franchise agreements refer to a separate Operations Manual. This document contains the practical rules and systems for running the business – everything from branding to how you handle complaints. The problem is that it’s often not disclosed before signing the agreement, and its contents can change. Legally, though, you’ll be bound by it. That means you’re signing up to obligations you haven’t seen, and which the franchisor can update at any time. If you can’t see the manual beforehand, ask for the key obligations to be listed in the agreement itself – and for changes to be limited or subject to notice.

This can be problematic because:

• You’re agreeing to comply with rules you’ve not seen

• The franchisor can amend it unilaterally

• Breach of the manual can lead to termination

Ask to see the manual or, if that’s not allowed, insist that any material obligations are stated clearly in the agreement itself.

10. Dispute resolution and jurisdiction

Finally, it’s worth checking what happens if things go wrong. Some franchise agreements include very one-sided dispute resolution clauses. These might require you to use arbitration (which can be expensive), or restrict you to a specific court jurisdiction – often wherever the franchisor is based. Some even make you liable for their legal costs, regardless of outcome. These clauses may never be needed, but if a dispute does arise, they can make enforcing your rights far more difficult and costly.

Check whether:

• There’s a mediation or arbitration process first

• Court proceedings are limited to the franchisor’s chosen location

• You’re liable for their costs

Some agreements include heavy-handed legal terms that make it much harder for franchisees to challenge unfair conduct or enforce their rights.

Final thoughts

Franchising can be a brilliant route into business – but only if you go in with your eyes open.

The franchise agreement sets the legal tone for the entire relationship. And while some things may be “standard”, that doesn’t mean they’re fair or suited to your situation.

Before you sign, get the agreement reviewed properly. You’re not just buying a business model – you’re entering into a long-term legal partnership.

If you need help reviewing a franchise agreement, that’s exactly the kind of work I do – clearly explained, commercially focused, and with your interests at heart.

I’ll also be honest – i’m not the cheapest solicitor to review franchise agreements, you will find cheaper online – but if you’re prepared to spend usually £950-1800 plus VAT on quality advice and great service, then get in touch.