Operating a franchise in the UK

Notably, there has been significant expansion in personal services, such as children’s entertainment and tutoring, personal training, pet care and hospitality and catering, such as hotels, coffee shops, and fast-food chains.

According to the British Franchise Journal 2024, published by the British Franchise Association and NIC Services Group, there are currently 1009 franchise systems operating in the UK, with the sector contributing approximately £19.1 billion to the UK economy each year. 89% of franchise units report profitability, with an average turnover of £400,000, and the UK franchise success rate stands at an impressive 99.5%.

This growth reflects the adaptability of the franchising model and its appeal across diverse sectors. Digitalisation and sustainability are increasingly influencing franchise structuring, with many systems integrating online platforms and eco-conscious practices.

Looking ahead, 41% of UK franchisors have plans to expand internationally, highlighting the global potential of UK-based franchise models.

Legal framework

The UK does not have any dedicated franchise laws. Instead, franchise arrangements are primarily governed by a combination of contract law, competition law and intellectual property (IP) law. The sector is also influenced by self-regulatory standards, particularly the British Franchise Association (BFA) Code of Ethics, which aligns with the European Code of Ethics for Franchising.

The BFA is the UK’s leading self-regulatory body for franchising, committed to promoting high standards and ethical business practices.  Although not legally binding, the BFA Code of Ethics plays a significant role in shaping industry standards. It promotes transparency, fair dealing, and responsible franchising practices throughout the franchise lifecycle.  
All BFA members are required to adhere to these standards as part of the Association’s accreditation process. It is not compulsory for franchisors and franchisees to be members of the BFA.

Franchise agreements are legally binding contracts that define the rights and obligations of both franchisor and franchisee. These agreements are typically long-term and relational in nature, requiring ongoing cooperation and mutual trust.

While English law does not impose a general duty of good faith, courts increasingly recognise implied duties of honesty and fair dealing in relational contracts, especially where there is a power imbalance or high interdependence between the parties, and have, in some cases, applied a duty of good faith. Closely related to this is the Braganza duty, which requires that any contractual discretion exercised by one party - such as a franchisor making decisions that affect the franchisee - must be exercised honestly, rationally, and for a proper purpose. Franchisors should be mindful of this when structuring agreements and making discretionary decisions, as courts may scrutinise such actions under this principle.

Franchise agreements must comply with UK competition law, particularly where they include restrictions on pricing, territories, or sales channels. These clauses must be carefully structured to avoid anti-competitive effects. The Competition Act 1998 and relevant guidance from the Competition and Markets Authority (CMA) are key references in this area. 

Dispute resolution mechanisms, such as mediation and arbitration are commonly used, with the BFA offering support in resolving franchise conflicts.

Intellectual property rights are central to franchising, as they cover the brand, trademarks, logos, and proprietary systems licensed to franchisees. Franchise agreements must clearly define the scope of IP use and include robust protections against misuse or unauthorised replication. Effective IP management ensures brand consistency and legal protection across the franchise network.

The Trading Schemes Act 1996 may apply in cases involving multi-layered franchise models, where franchisees recruit sub-franchisees. In such cases, care must be taken to ensure compliance with anti-pyramid selling provisions. 

Structuring and setup

In the UK, franchisors and franchisees are typically structured as private limited companies (Ltd). This structure offers limited liability protection, a clear governance framework and is widely recognised by investors and franchisees. Alternative structures, such as sole traders or partnerships, are legally possible but less common due to increased personal liability and limited scalability.

In some sectors, it is common for franchisors to require individuals behind the franchisee entity, such as directors or shareholders, to sign personal guarantees, making them personally liable for the franchisee’s obligations under the franchise agreement.  
There are no legal restrictions requiring franchisees to be UK nationals or entities. However, franchisors may impose their own criteria regarding ownership, management experience, or financial standing. 

Restrictive covenants

Non-compete clauses are permissible under UK law, but their enforceability depends on whether they are reasonable in scope, duration, and geography. Non-compete obligations are generally enforceable if they are proportionate and directly related to protecting the franchisor’s legitimate business interests, such as brand reputation, know-how, and customer base.

Post-term restrictions are subject to stricter scrutiny under UK competition law. They may be enforceable if they are limited in duration, typically no more than one year, they are narrowly tailored to the franchisee’s geographic area and business scope, and they are necessary to protect transferred know-how or intellectual property.

Resale price restrictions 

Pricing controls are another key consideration. UK competition law prohibits the franchisor setting a minimum price at which franchisees must sell products, called retail price maintenance (RPM), except in one limited exceptional circumstance.

In a franchise system, it is possible to justify RPM where it may be necessary to organise a coordinated short term, between two to six weeks, low price campaign where the arrangement benefits consumers, such as through lower prices.

Recommended retail prices are allowed, if franchisees can set their own prices. Generally, maximum resale prices are also permissible provided that the value is not set so low that it is ultimately a minimum price.

Length of franchise agreement  

The duration of franchise agreements varies and there are no statutory restrictions on the length of franchise agreements. Terms typically range from five to twenty-five years with most lasting five to ten years depending on the nature of the business and the level of investment from the franchisee.  

Renewal terms 

Renewal terms are negotiated between the parties and often subject to performance criteria or updated agreement terms.
Franchise agreements do not need to be registered with any local authority in the UK and there is no legal requirement for franchising agreements to be in English.

The BFA’s code requires that every agreement and contractual arrangement in connection with the franchise should be written in, or translated into, the official language of the country where the individual franchisee is established or in a language in which the franchisee formally declares itself competent. 

There is no legal requirement for franchisors to provide a franchise disclosure document (FDD), however, the BFA encourages transparency and disclosure as best practice and the code requires BFA member franchisors to provide “full and accurate written disclosure of all information material to the franchise relationship within a reasonable time prior to the execution of binding documents”. 

Intellectual property

Protecting intellectual property is fundamental to maintaining brand integrity in a franchise system.

Trademarks are registered with the UK Intellectual Property Office (IPO). A UK trademark registration lasts for 10 years and can be renewed for further periods of 10 years, on payment of renewal fees. 

The owner of a registered trademark has exclusive rights to use the mark and can sue anyone who infringes it or uses it without their consent. 

If a trademark is unregistered, there may be common law protection under the tort of “passing off”. However, bringing a passing off action can be difficult and expensive, so it is recommended to register the trademark.  

Franchisors can protect materials through copyright and may also register patents and certain design rights. Confidentiality agreements are also crucial to safeguarding proprietary information, trade secrets and know-how. Franchisors may sometimes require key individuals to sign personal non-disclosure agreements to further safeguard confidential information, trade secrets and know-how.