Wednesday 19 November 2008

Non-reliance clauses in UK franchise agreements: how effective are they?

Intellectual Property Office carried a recent article by UK solicitors Richard Little and Vanessa Smith (Eversheds), "Franchise Agreements: How Effective Are Non-reliance Clauses?". This item explains that, should the relationship between franchisor and franchisee break down, the failing franchisee often alleges that the franchisor mis-sold the franchise by understating the risks of the business:
"This can trigger an examination by both parties of what exactly was said by the franchisor to the prospective franchisee in pre-contractual discussions, on the basis of which the latter decided to enter into the franchise agreement. The franchisor should be confident that the information given to the prospective franchisee at that stage was entirely accurate. However, in the event of any doubt, a franchisor may well point to any non-reliance clause in the franchise agreement. Non-reliance clauses are commonly used to seek to limit the franchisor’s liability for any representations made to a prospective franchisee except those expressly contained in the contract, and may state that the franchisor makes no representations or guarantees as to the profitability or any other aspect of the franchise business".
The article then goes on to discuss, among other things, the ruling of Deputy Judge Richard Seymour QC, the High Court for England and Wales, in Peart Stevenson Associates Limited v Brian Holland, a case arising out of a franchise for The Power Service.

I found myself thinking that the representation by the franchisor that a franchise can be expected to generate a specific range of income is not merely a representation of probability with regard to the earnings of a business format -- it's also a form of self-assessment intellectual property valuation, placing a value in terms of earnings on the combination of brand name, know-how and other IP elements that may be combined with the rest of the business proposition. Do any readers of this blog have any special interest or expertise in business format franchise-related IP valuation, either in respect of the value of the franchised brand as a whole or in terms of the value to the franchisee of buying into an existing branded franchise rather than investing in its generic equivalent?

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