UK Franchising – Statutory Regulation on the Horizon?

Proposals currently being debated in Parliament could have significant implications for the UK franchising industry.

The government’s plans involve the introduction a statutory “Core Code” setting down principles of fairness in commercial agreements between pub companies and their tenants, and a statutory adjudicator with the power to impose fines for companies who breach the code.

This has an immediate implication for pub companies, whether or not they are involved in franchising.  But if the new scheme proved successful, it is difficult to see why the government would stop at the licensed trade, and not extend an enforceable Core Code of fairness into other business sectors.

It is a rare thing for UK governments to interfere with regulation of B2B contracts, such as franchise agreements – the general philosophy being that businesses should be free to contract, and be bound by, whatever commercial arrangements they choose to engage in.  But the proposed new code for the licensing sector could set a significant new precedent.

The British Franchise Association has always championed self-regulation, rather than statutory control, and offers an effective arbitration scheme which leverages appropriate franchising expertise.  But it is a voluntary scheme, which would for its licensing members be overtaken by the imposition of this compulsory statutory scheme.  The BFA is already taking a proactive position, and is in dialogue with the government.

One solution being considered is a possible exemption from the new code for BFA members who agree to mandatory arbitration through the BFA scheme.  The BFA arbitrator would have the appropriate experience and expertise in franchising, and could use the BFA Code of Ethics as a reference point.  This has the potential to reinforce the BFA’s ability to drive ethical standards in franchising.

Clearly, there are more questions than answers at this stage, but this could herald some interesting times ahead for UK franchising.

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