A national estate agency that operates on a franchise basis has successfully taken legal action to prevent competition from a former franchisee.
The agency offered training and support to partners across the country.
Franchisees could only operate within their own defined area and were subject to a restrictive covenant stating that if they ended their contract, they could not set up a rival business in their franchise area within a certain specified time.
A dispute arose when the franchisee discovered that the agency had allocated part of its area to another firm.
The agency acknowledged that it had made a mistake but the relationship began to deteriorate. The franchisee complained that it was being subjected to aggressive business practices from other partners. It also said that the training provided by the agency was just ordinary business practice and of little value. It renounced the agreement and said it would stop trading under the agency’s name.
Injunction to enforce restrictive covenant
The agency applied for a court injunction to enforce the restrictive covenant and prevent the franchisee competing under its own name.
The court ruled in favour of the agency. It accepted that there had been mistakes but that did not justify the franchisee terminating the contract.
The franchisee clearly found the arrangement to be unsatisfactory and a bad business decision, but that did not entitle it to ignore the agreed terms and conditions.
There was also the issue that if the franchisee was able to remain in the same premises and operate a new business, other franchisees might think that they could do the same. That would effectively destroy the viability of the franchise network.
Please contact us if you would like more information about the issues raised in this article or any aspect of using the law to protect your business.