What impact will Brexit have on UK franchising?

Immediately following the referendum, Pip Wilkins, CEO of the British Franchise Association provided the voice of calm and reason:

“We want to be clear that for us, and for franchising, it is very much ‘business as usual’. We will continue to work closely with the European Franchise Federation and reap the opportunities that it affords to guide and inform on franchising across Europe.” 

Indeed, as developments unfold on a daily basis, it is important to stay grounded. Let’s look at the facts so far.

At the time of writing, the now-famous Article 50, which will trigger the UK’s exit from the EU, has yet to be invoked. And even when Article 50 is triggered, the negotiations are predicted to take at least two years, giving franchisors and franchisees time to anticipate the changes in the commercial, economic and legal landscape.

One argument that ran through the Brexit campaign related to the UK’s need to regain control of English domestic law.  But unless and until Article 50 is triggered, nothing in our legal landscape will change.  Even then, there may be no, or very little, impact on franchising laws in the UK.  

UK domestic franchise agreements are largely governed by English law or Scottish law.  Brexit will not change that, and thus there is no need for changes to our franchise agreements on the visible horizon.  

It is quite true that franchising in the UK is affected by EU laws, but only in limited and specific respects.  And where these EU laws do affect us – for example in the fields of competition law, consumer law and data protection – they are, in any event, enshrined in UK domestic legislation.  Even in a post-Brexit world, we will continue to be bound by the UK Competition Act 1998 (mirroring EU anti-competition principles), unless and until our Parliament repeals it and replaces it with something else.  

When it comes to UK master franchises, because the UK does not have franchise-specific laws, or franchise registration and disclosure obligations that are applicable across the EU, the typical governing law, jurisdiction and arbitration provisions in master franchise agreements are less likely to be disrupted by Brexit.

Last year was a bumper year for the franchising industry.  The bfa/Natwest Franchise Survey 2015 revealed an annual industry turnover of £15.1 billion – a 46% rise on 2006 figures.  The number of brands now operating in the UK has hit 901 and franchisee profitability levels are the highest ever recorded:  over half of franchisee businesses reported an annual turnover of more than £250,000.

Research indicates that it is the Business to Consumer (B2C) systems that account for the majority franchises.  This may be where Brexit has its most notable impact.  As in all consumer sectors, the success of a franchised businesses is linked to consumer confidence.

But from the outset the Bank of England has made every effort to assure businesses and consumers alike, that it has measures in place to support the UK economy during times of uncertainty.  While there is talk of reducing interest rates, to help stimulate the economy, and the introduction of quantitative easing, so far early evidence shows that banks’ appetite to lend has not decreased since the referendum.  

As things stand presently, it is a waiting game.  But while we are waiting, it is important to keep informed and to stay vigilant, particularly when it comes to monitoring the financial markets and potential impact on exchange rates, changes in interest rates and the prices of products.  

And although no immediate action is required, if you are currently making long term business plans, it is sensible to consider the potential implications of a UK exit on future arrangements and when talking to prospective franchisees.

Roz Goldstein, managing director, Goldstein Legal, says: “Nobody enjoys times of uncertainty. But whilst the future of the UK’s relationship with Europe is yet to be determined, it is important to ensure that you, your business and your network are prepared to make changes and to adapt when required.  Give your business a Legal Health Check and be sure that you have a trusted solicitor to call upon, so that you can respond to future developments in the law, in a timely manner.”

Goldstein Legal’s commercial and legal insight can help you build a legal framework that protects your business and promotes its success.

For an initial free consultation with one of our expect franchise lawyers, get in touch by emailing - Hannah Jenkins