Full time and attention

Most franchise agreements will contain a clause requiring the individual to dedicate their full time and attention to the franchised business but what happens if the individual has other business interests or wants to acquire another franchise?

Full time and attention

The answer is that any departure from the core obligation will be subject to franchisor’s consent and such consent may be subject to conditions.  If such consent is granted, this will need to be documented and this is usually done by way of a side letter which would typically address the following matters:

Nature of “other” business – this could be specific by naming the other business expressly which would mean that the named business is the only other business you can be involved with and any further or additional interest would require fresh consent and a further side letter.  Alternatively, the side letter could be phrased to allow involvement in any business as long as it is not a similar or a competing business.

Limit on hours

The side letter could set a maximum number of hours that you are permitted to spend on “other” business interests.  This would be suitable if the other business only requires a small amount of your time, e.g. a non-executive directorship of another business which requires up to 2 hours a month.

Limited in time

Perhaps this involvement is only temporary in which case the side letter would reflect the fact that your involvement in the other business will be limited in duration.

General manager

If the other business is likely to demand more time than simply a couple of hours per month, then you may be required to recruit accordingly and make provisions within your existing franchised business, for example by recruiting a general manager, who may require franchisor’s approval prior to being appointed and will need to complete training.  Despite having a general manager in place, it will be you who will be ultimately responsible for the business.

Performance criteria

Consent may be subject to your franchised business continuing to meet certain performance criteria and/or milestones.  Ultimately, the franchisor will want to be assured that your franchised business will not suffer as a result of your other business interests.  The side letter should also set out what will happen if the performance is negatively affected.  Again, there are a number of possibilities from ceasing your involvement in the other business to selling the franchised business.

If you are scaling up and looking to purchase a second or additional franchise from the same franchisor (i.e. becoming a multi-unit franchisee), then the side letter is likely to waive the requirement of full time and attention by replacing it with an obligation to dedicate such time and attention as may be appropriate by focusing on performance criteria instead.  In this case, it is also common for the franchise agreements to be linked so that breach of one may be treated as breach of all.  In addition, in the case of multi-unit ownership, you can expect the side letter to set out the agreed steps for what will happen if one or more stores or businesses fail to perform or where performance deteriorates.

If you are investing in another franchise but it is with a different franchisor, i.e. becoming a multi-brand operator, then essentially you will need to have the same conversation with both franchisors, ensure that you have side letters in place for both franchise agreements and expect the consent conditions to be subject to performance criteria.

In conclusion, the obligation of full time and attention does not necessarily preclude you from having other business interests or indeed scaling up but it will require timely discussion with the franchisor and consent may be subject to conditions since the franchisor will expect you to continue to grow and expand your franchised business!

Natalia Shvarts
Natalia Shvarts