Are Franchise Agreements and Electronic Signatures Compatible?

Goldstein Legal have noticed an increase in clients contacting us to ask whether electronic signatures are sufficient to execute franchise agreements, especially during the ongoing Covid-19 pandemic. In this blog we will explain the options available to franchisors at this time.

The general rule under contract law is that there is no prescribed method to form a binding and valid contract provided the primary requirements of offer, acceptance, and consideration are satisfied. As such, a valid contract need not be written and can be formed by oral agreement. However, this can give rise to uncertainty, and it is of course best practice to have a contract drafted and executed. Signaling agreement by signing a contract confirms the intent of each party to be bound by the terms therein.  Accordingly, where a straightforward contract requires the simple signature of each party to confirm its execution, the use of electronic methods to signal such intention is sufficient and well established. 

However, there are some exceptions to this rule, including the additional formalities to be met in order to execute a document by deed. For a deed to be valid, it must expressly state that it is a ‘deed,’ and must be delivered and executed as a deed. It is the requirements to validly execute the deed, namely the need to have each party’s signature attested by a witness, that is proving the most difficult in the current climate. When a witness signs the deed, they are confirming that they have physically witnessed the requisite party sign the document in their presence. In light of the pandemic, and the introduction of social distancing among other measures, clients are understandably querying whether this is possible.

While some franchise agreements require a simple signature and electronic agreement will therefore suffice, Goldstein Legal recommend that any personal guarantee provided by a franchisee should be executed by deed. In short, the requirement to have a witness attest the franchisees signature offers enhanced protection against claims that the document was not properly executed or that the franchisee had no intention to be bound.

However, for the reasons explained, we understand that encouraging a witness to attend the wet ink execution of the document is not always practical. Accordingly, our suggestion to clients at this time is to remove all references and formalities requiring the document to be signed as a deed if having the document witnessed is not an option. While this permits a franchise agreement to be executed electronically, we must advise that it does not offer the same protection as regards the personal guarantee had it been executed by deed.

Goldstein Legal would discourage franchisors from making direct changes to their franchise agreement, any such alterations to the deed or otherwise should be carried out by a solicitor.