Messy Situation for Cleaners: FT Q&A

The following question was published in the Financial Times on 11 February 2012 and answered by Robert Campbell, a partner in the London office of Faegre & Benson LLP.

My office cleaning franchise business has signed a single unit franchise in the City of London with one franchisee.  We agreed to provide the franchisee with staff training, set up all advertising and provide initial contracts.

We have done this and have cleaning contracts due to start in two weeks, but the franchisee has not been in touch to update us on progress and has not sent us any staff for training.  We will now have to cover these cleaning contracts with another franchisee, which will cost us money.

Can I claim this back against the franchisee, assuming he neglects to take up these contracts?  Will this be enough to terminate the contract and recover all initial costs?

Unlike the US, England has no discrete franchise legislation.  Accordingly, the rules of contract apply.  In this case, the contract is your franchise agreement.  A properly drafted agreement should provide for payment of an initial fee on the date of the agreement to cover your preliminary outlay – but your question suggests that this might not have been paid.

If the franchisee fails to provide any staff, he will be in material breach of the agreement, which will justify you terminating immediately.  Again, this should be expressly provided for in the agreement.

You will be entitled to claim for foreseeable damages that would put you in the same position as if the contract had been properly performed, which should include any costs associated with providing alternative contractors to complete your cleaning contract – subject to the usual requirement of mitigating that loss. 

Your agreement may also specify your entitlement to recover any such losses.  Check your agreement to see if it provides for an indemnity and guarantee from the franchisee.  This will make recovery much easier.  You should also consider whether you have sufferered any loss of reputation – which may also be recoverable.