Recent events have left businesses in a flux of indecision. In this article we outline key issues to consider to protect your franchise business to help assuage the chaos of an impending Brexit.
It is undoubtedly the case that whatever your franchise business does, it has contracts in place with suppliers, customers and other third parties. English and Welsh contract law is flexible and business friendly, so significant disruption is unlikely. The UK Government has publicly confirmed that it will implement EU regulations into domestic law to ensure a smooth transition.
If you do rely on trade across EU Borders, you may need to begin renegotiating your supply or trade contracts early. Following Brexit, terms of cross-border trade will change. For example:
- If your contracts refer to governing EU law, EU territory or EU jurisdiction or enforcement, those terms will need to be amended accordingly; and
- If your contract makes provision for termination on the UK leaving the EU, consider whether or not the other contracting party is likely to exercise such a right or whether the contract requires renegotiation to remove such a term.
Such amendments may seem cosmetic or administrative in nature, but as of midnight on 31 October 2019, those terms may become immediately effective. It is important that you check the terms of your contract carefully.
If your franchise business relies on an EU based supply chain, either directly (or by virtue of having a contractual relationship with an entity that does rely on an EU based supply chain), you need to make sure you are protected.
In particular, consider:
- The cost of exports is likely to rise, does your business have the cashflow and cash reserves to counteract the increase in export costs?
- Are you up to date on the current customs procedures and any potential changes to those procedures?
- Do you need to stockpile goods in order to ensure you can discharge your contractual obligations?
It is vital that, in light of the coming changes that Brexit will bring, you have prepared your business to ensure contractual compliance.
If you are a franchisor, you will undoubtedly have a brand protected by trademark registration. Brand protection is, of course, of paramount importance to a franchising business and it is likely that you will have taken steps to register your brand under EU legislation to protect your intellectual property interest in the UK. You may not have taken steps to register that same trademark under UK legislation.
In the event of a “no-deal Brexit”, the government have confirmed that property rights in existing registered EU trade marks (“EUTMs”) will be protected and enforceable in the UK by providing an equivalent UK right from 31 October 2019. However, they have not specified whether or not this process will be automatic and whether it will incur a fee.
It may be prudent, therefore, to take steps to register your existing EUTM in the UK (if you have not already done so) to ensure that your brand is protected here. Losing your intellectual property rights can be extremely damaging to a franchise business, so it is important that Brexit does not remove those rights and jeopardise your franchise business.
If the government do manage to reach an agreement with the EU, however, the Intellectual Property Office have confirmed (albeit in August 2016) that the EUTM holders would enjoy comparable rights following the exit day without the need for further procedure and without incurring a further fee. However, the prospect of an agreement at present looks, at best, unlikely.
The Franchise Network
As a franchisee, you may be part of a network that is headquartered in an EU country or that has other franchisees within EU countries. At present, EU franchise networks enjoy a relatively unfettered relationship in respect of infrastructure and franchisee-to-franchisee support. This may well change after Brexit.
The support offered by EU franchise networks could be restricted by the EU and UK’s future relationship. Regardless of what agreement is reached between the UK and EU, it is extremely unlikely that the movement of goods and people will be as unrestricted as it is at present.
This not only has implications on your ability as a franchisee to receive goods and services from other EU countries but has logistical implications for your place in the franchise network. For example, if your network holds conferences or attends exhibitions that take place within the EU, it is likely that your travel costs – especially if your members of staff attend – will be significantly higher. Given that most franchise agreements place the burden of costs on the franchisee in respect of travel expenses, this could have significant implications for you, particularly if you do attend a number of conferences or exhibitions.
It is therefore of the utmost importance that you consider all the potential expenses that come with Brexit and prepare your franchise business accordingly.
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