The Legal Blog
Unfortunately, having problems with a franchise or franchise agreement is not uncommon at some stage on your franchise journey. Franchise problems can arise for a number of reasons whether due to additional obligations imposed on the franchisee, the franchisee being unable to make ends meet or because the franchisee does not think the franchise lives up to what was sold to them at the outset.
In these circumstances there are a variety of things a franchisee should or should not do... these are what we consider to be the most important dos and do nots.
- Go on social media or the internet making allegations about the franchisor or name calling;
- Seek to rally the rest of the network against the franchisor without having taken legal advice;
- Tell the franchisor you are terminating the agreement without have taken advice on your right (or lack of) to do so;
- Just stop paying your franchise fees without taking advice;
- Stop communicating with the franchisor altogether.
If you do these things you may well find your franchise agreement is terminated for breach and you are on the hook for damages as a result of your actions and breach of the franchise agreement. You may also find your conduct makes it more difficult to reach a swift and amicable resolution of your problem with the franchisor and limits the options the solicitor may identify for you.
- Prepare a chronology of events which highlights why you are unhappy;
- Go through your paperwork and pull together any email evidence, your franchise agreement and any sales material that you received about the franchise;
- Consider ways the issue might be capable of amicable resolution and what your ideal outcome is;
- Above all else - take legal advice on your position before making any decisions or seeking to extract yourself from the franchise. Ensure you receive advice from a franchise specialist who has dealt with many franchise cases.
Early advice on your position will help you understand your options, risks and possible solutions. It will also prevent you from making costly mistakes which may be hard for a solicitor to undo once it is too late.
Amy Leite, Franchise Solicitor t: 01245 206341 e: email@example.com
One of the most commonly used employee share schemes is an Enterprise Management Incentives Option (EMI option). An EMI Option is a type of employee share option that enjoys favourable tax treatment.
What are the key business benefits of employee share schemes?
The main benefits are financial and motivational:
- Tax and NICs savings Some types of share scheme attract particular income tax and national insurance contributions (NICs) advantages that can help reduce a business’s employment costs. Corporation tax relief may also be available.
- Employee retention They can help to recruit, retain and motivate high-calibre staff, and align shareholder and employee interests.
- Conserving cash There may be less pressure on salaries if a business offers a share plan.
- Employee performance incentive They can act as an incentive for employees to meet key business and financial targets.
- Succession planning Ownership of a business can be gradually transferred to its employees, rather than to new outside shareholders, through awards made under employee share plans.
Which companies can grant EMI options?To qualify to grant EMI options, a company must be an independent trading company with:
- Gross assets of no more than £30 million.
- Fewer than the equivalent of 250 full-time employees.
Certain trading activities will not qualify and there are detailed rules relating to the independence requirement, the trading requirement and the shares that can be used for EMI options.
What shares can EMI options be granted over?
EMI options can be satisfied by:
- Newly issued shares.
- The transfer of existing shares from a shareholder.
Who can be granted EMI options?
To be eligible to be granted an EMI option, an employee must work for the company for at least 25 hours per week, or if less, 75% of their working time.
Employees cannot be granted EMI options if they (or their ‘associates’) have a ‘material interest’ in the company whose shares are used for the scheme, or in certain related.
EMI options can only be granted to employees. They cannot be granted to non-executive directors or consultants.
When can an EMI option be exercised?
EMI options must be capable of being exercised within:
- Ten years of the date of grant.
- A period of 12 months after the option holder’s death.
Otherwise, there are no restrictions on the exercise provisions that can apply to EMI options, and this flexibility means that they can be used for exit-only arrangements (where an option can only be exercised on an exit event, such as a share sale or listing) period.
If you would like to arrange a free consultation to discuss the benefits of EMI options with one of our senior corporate lawyers, please contact Kieran Lowe on firstname.lastname@example.org or 01245 673072.
Aquabridge Law and its affiliates do not provide tax or accounting advice. This material has been prepared for information purposes only, and is not intended to provide, and should not be relied on for, tax or accounting advice. You should consult your own tax and accounting advisors before engaging in any transaction.
If you are thinking of buying or selling a leasehold property, make sure you understand the terms of the lease as it can impact your plans:
- A short lease can impact the sale price of your property
- If you’re buying, mortgage companies won’t lend on properties with less than 70 years remaining on the lease, some lenders can require more
- Lease issues can hold up the sale or purchase of a property which can cause problems, particularly if you are in a chain.
On the upside, lease issues can be resolved with proper legal advice and, of course, the Conveyancing Team at Aquabridge Law will be very happy to help you.
Often a flat owner may not be aware of the issue until it is too late so it is important that you consider these issues prior to putting your property on the market, or making an offer to buy a leasehold property.
In law, a flat owner has the right to buy a new lease and we can help you through this process, explaining the costs and timescales required and liaising with your landlord throughout. Typically you would need to cover the costs of the valuation of the lease, the cost of the lease itself and the landlord’s legal fees.
If you have owned the property for at least two years, you are entitled to apply for 90 years plus the remaining term of the current lease. So, for a lease granted in the 1980s on a 99 year term, you would end up with a new lease term of around 150 years. As well as improving the value and appeal of your property, a new lease can often mean that ground rent is reduced; good news whether you are planning to stay in the property or planning to sell it.
If you are selling and don’t want to go through this process yourself, you can assign your right to a new lease to your buyer as part of the sale contract. They can then apply for the new lease without waiting for two years.
Extending your lease can be a complicated process and take time to complete the valuation and subsequent negotiations with the landlord. The Aquabridge team have helped many clients with lease extensions, either as a standalone legal process, or as part of the sale of a leasehold property.
Make sure you know the length of your lease, and seek solid advice on how to deal with it before it starts to become an issue. Call Sharon at Aquabridge on 01394 330680 to discuss how we can help.
We frequently come across questions from our employer clients about giving or asking for references. This highlights how many employers remain unsure about the rules for references.
The Basics - Obtaining a reference
Although it is very common to do so, a new employer is not obliged to take references for employees. You can rely on information from the employee, the application and/or the CV if you wish. If you do choose to request references, remember:
- Offers of employment can be made conditional upon receipt of at least one satisfactory reference. If an employer fails to make an offer conditional and the offer is then withdrawn on the basis an unsatisfactory reference is received the employee can have a claim for breach of contract.
- To avoid arguments over whether a reference is ‘satisfactory’ consider stating that the offer is “subject to receiving a reference(s) that is satisfactory to us/the Company”.
The Basics - Giving a reference
Generally, there is no legal obligation to give a reference. However, policies on when and in what circumstances a reference will be given should be consistent to avoid allegations of discrimination. Here are a few points to consider when giving references:
- An employer has obligations to both the new employer and the former employee when giving a reference.
- If a reference is given it must be true accurate and fair and must not give a misleading impression. There is a duty to take reasonable care when preparing a reference.
- References should include an appropriate and properly drafted disclaimer.
- References can be given in a personal capacity or on behalf of a company employer. If a personal reference is to be given it should not be on company headed paper.
- It is a good idea for Employers to have a reference giving policy to set out who in the company can give company references and what information they should contain.
- Providing a reference will generally involve processing personal data and be subject to the Data Protection Act 1998.
If you need any help with references, Amy Leite, Aquabridge’s Employment Lawyer can advise on deciding to give a reference, wording or disclaimers. Contact Amy on 01245 206341.
1. If my franchise isn’t working out I can just walk away
This is rarely the case. Once the franchisee has signed a franchise agreement it is very difficult to just walk away from it without significant risk of a claim by the franchisor. A franchise agreement is generally for a fixed term of 5 years and there isn’t usually an option to walk away or give notice to terminate the agreement on the basis it is not working out. There are some limited common law rights that can assist a franchisee in trying to get out of a franchise agreement but specialist advice is required to see whether these rights apply in the circumstances.
2. Even if I do breach the agreement what can the franchisor do if I have a limited company which has no money!
Again, it is rarely this straightforward. Most, if not all, franchise agreements which have been drafted by a solicitor will contain a provision tying an individual, guarantor or principal into the franchise agreement personally. This means the franchisor can usually pursue the individual personally under the terms of the franchise agreement.
3. As I am a franchisee rather than an employee I can work whatever hours I want
Usually this is not the case. The franchise agreement will often refer to minimum opening hours which are usually contained in the operating manual. Remember, opening hours are just the hours the business is to be open or accepting calls and enquiries; franchisees must plan for the marketing, record keeping and admin tasks that are part of being a business owner.
4. The post termination restrictions in my franchise agreement are not enforceable as no one can lawfully stop me earning a living
This is not always correct, post termination restrictions such as those which prevent the franchisee being involved in a competing business and prevent solicitation of customers are generally enforceable if they are reasonable. There are many legal tests we look at to establish how reasonable a clause is and whether they are enforceable – specialist advice must be sought as these are costly to get wrong!
The British Franchise Exhibition in Manchester is fast approaching and if you are seriously considering investing in a franchise you should be doing your research now.
Know what you want and don’t want
The most important part of searching for your franchise is knowing what you really want from the business.
- Do you want an income for the short or long term?
- Are you looking to develop a business which you could sell in future?
- Think about your skills... are you creative, good at sales, love children?
- Do you want to work full or part time?
Come up with a list of key musts, maybes and definitely nots for your ideal business so you can compare each franchise against your wish list.
Do your research
Once you have your wish list, research the franchises you like the look of online, both their website and google reviews, so you can make the most of the exhibition. Check what else is on the market in that sector (even if they are not exhibiting) so you know the options.
Prepare a list of focussed questions for the franchisor so they can tell you what they offer and how they differ from their competitors.
Do not be sold on price
Do not be sold on the price of the franchise. It is important to set and stick to your budget. A franchisor who sees the value in working with you may be willing to negotiate.
The most expensive option may not necessarily be right – think about what support you need or don’t need, how the franchisor works and what you like about their model to work out which franchise ticks the most boxes for you.
Do not get caught up in the moment
Don’t agree anything on the day – you will need to do more research and raise many more questions before you make your final decision. Be wary about exhibition only deals; it is a big commitment and must be right for you and the franchisor.
If you do pay a deposit on the day, make sure you are not obliged to sign up to the franchise agreement and that you have in writing how much was paid, that it is fully refundable if you change your mind (or if not, how much is refundable) and when the refund would be made.
Take advice before signing your franchise agreement!
Once you have made a decision and you have your draft franchise agreement in hand ensure you take advice and understand what you are signing up to.
Franchises are big commitments and often people sign up without understanding their rights and obligations – specialist advice is an investment but a very important one that could save you and your business a lot of money in the long run!
Whether mooring a houseboat amounted to adverse possession of the Thames river bed (Upper Tribunal)
The Upper Tribunal (Tax and Chancery) (UT) considered whether a person (M) claiming adverse possession of part of the Thames river bed had demonstrated sufficient intention to possess.
The Port of London Authority applied to register its title to part of the Thames river bed. However, M claimed that he had acquired title to the area occupied by his houseboat by adverse possession. The houseboat had continuously occupied the same mooring for the previous twelve years.
The UT held that, on the particular facts, the adverse possession claim failed. Although factual possession had been established, intention to possess had not been proved. It explained that:
- The act of mooring was as equivocal an act of possession as could be imagined. There was no authority that merely mooring a boat was sufficient for an adverse possession claim to succeed. That was not, however, to say that the mooring of a boat could never, in principle amount to adverse possession; the question would always turn on the facts. There were many reasons why a boat might be moored, and the mere act of mooring gave no insight into the boat owner's intentions.
- It was possible in principle to acquire title to the river bed by adverse possession where there were public rights of navigation, although such public rights could not be extinguished by adverse possession.
( Port of London Authority v Mendonza  UKUT 146 (TCC). )
This matter concerned a sole shareholder and director of an engineering company who was killed in a skiing accident.
The client died without a will in place and left a widow and two children under eight.
- Contrary to popular belief, a spouse does not inherit all property and money when there is no will and there are children. The children share the estate with the spouse. Without an order of the court which is expensive, time consuming and with no guarantee of finding in favour of the spouse, the estate cannot be re-distributed to the spouse.
- Assets of the deceased, including business interests, are frozen until a Grant of Representation is obtained.
- As children are benefiting from the estate, the spouse and a third party must apply for the Grand of Representation to become administrators. All decisions are then made by the administrators.
On death inheritance tax is payable on the value of estates in excess of the ‘nil rate band’, currently £325,000 for each person. The tax rate is 40%. The initial value between £0 and £325,000 is called the nil rate band because the tax rate is 0%.
Since 2007 husband and wife and civil partners can on death transfer any unused nil rate band to the survivor. Consequently married couples and civil partners have an inheritance nil rate band of £650,000. Their assets have to exceed this sum before they pay inheritance tax. (This is subject to no lifetime gifts having been made).
The Finance (No. 2) Bill 2015, published on 15 July 2015, introduces an additional inheritance tax residence nil rate band. It applies to deaths on or after 6 April 2017, when a residence is passed on death to lineal descendants. The additional nil rate band is in addition to the existing £325,000 nil rate band. Any unused additional nil rate band can be transferred to a surviving spouse or civil partner where the second death is on or after 6 April 2017. The basic additional nil rate band for 2017-18 will be £100,000, rising in stages to £175,000 in 2020-21 and in line with the Consumer Prices Index after that. There will be a tapered withdrawal of the additional nil rate band for estates worth over £2 million.
All of this is set to make inheritance tax just that more complex. In a little more detail then.
To qualify for the additional nil rate band an estate must include a ‘qualifying residential interest that is closely inherited’. This means inherited by one or more lineal descendants.
The term ‘lineal descendants’ is not defined but is generally understood to include children, grandchildren and remoter descendants but not collateral descendants such as nieces and nephews. However, for this purpose, lineal descendants also include anyone who was, at any time, a stepchild of the deceased, an adopted child of the deceased, a foster child of the deceased and a child for whom the deceased was a guardian.
To be ‘Inherited’ the property must form part of a deceased person's estate on death and is anticipated to include property covered by
- by will, or intestacy (where there is no will) or that transfers by survivorship. However, if the property is placed into a trust it is only classed as ‘inherited’ and therefore within the additional nil rate band allowance if it is:
- a type of trust called a life interest trust (reasonably common in wills)
- a disabled person's interest (uncommon)
- a number of gifts to children and grandchildren which take the form of simple or more complex trusts.
- by a lifetime gift where there is a ‘ reservation of benefit ’ and gifted property during lifetime is still treated as if it were part of the deceased's estate for inheritance tax purposes.
Ironically this is where a gift has failed for inheritance tax purposes; a gift that has been successfully handed over to a child will not benefit from the additional nil rate band, although it will from the current nil rate band of £325,000.
The catch is that a property will not be regarded as ‘inherited’ if it is transferred on death to any other type of will trust even if the beneficial class is limited to lineal descendants. Here we need in particular to consider the impact on discretionary trusts which are commonly used as protective family trusts. If you have a discretionary trust in your will then take the time to review your will and understand the impact and the pros and cons of removal of the trust.
It should be good practice for your lawyer to at least consider use of current law which allows specific gifts to be determined within discretionary trusts and for these specific gifts to be written into the terms of a will called writing back provisions. This would allow a restructuring of a will to be made within two years of death so as to be able to claim the additional nil rate band allowance.
So not all may be lost. We also remain able to generally vary wills and intestacies although this is under review.
What can be transferred between husband and wife and civil partners?
Any unused additional nil rate band allowance can be transferred to a surviving spouse or civil partner provided the surviving spouse dies after 6 April 2017. The first spouse or civil partner’s death must be before this date; it can be prior to 2015.
Unused additional nil rate band allowance will arise where the first to die did not have a qualifying residential interest, had a qualifying residential interest that was not ‘closely’ inherited which would usually be because it was left to the surviving spouse or civil partner. This is the same situation with the transfer of the current nil rate band of £325,000.
What happens if the value of assets exceeds £2 million?
A taper is applied to reduce the available additional nil rate band if an estate is valued at over the taper threshold set at £2m for the tax years 2017-18 to 2020-21 inclusive. The taper threshold will increase in line with the consumer price index.
For 2017-18 to 2020-21, the taper reduces a person's own additional nil rate allowance (that is, not taking into account any unused RNRB brought forward from a deceased spouse or civil partner) to nil where an estate is valued at £2,200,000 or more.
The taper also applies to the amount of additional nil rate band allowance that can be transferred from spouses who die before 6 April 2017.