The political divisions between Scotland and its neighbour to the south have featured prominently in the media in recent years. The debate over the future of Scotland within the United Kingdom raised many questions and prompted lively debate. One particular question we were often asked by Franchisors based in England was: “Is my Franchise Agreement enforceable in Scotland?” Perhaps unhelpfully the answer to this question is: “It depends”.
Bringing it back to basics, Scotland has its own legal system which is separate and distinct from the legal system of England and Wales (which, for the purposes of this article – and with apologies to any Welsh readers – we will refer to as “English” law). Prior to the Act of Union in 1707, Scottish law evolved over hundreds of years with its own rules and regulations and its own courts for hearing disputes.
Fortunately for those in the business world, the world of commerce has grown while Scotland has been a part of the UK and, consequently, the majority of “corporate and commercial” matters are very similar on both sides of the border. The key differences tend to arise in the more timeless matters of buying, selling or leasing property and, of course resolving disputes through the courts.
With regard to a franchise agreement which has been drafted under “English Law”, there a number of potential issues which we would always recommend that any franchisor be mindful of when signing an agreement with a Scottish-based franchisee:
Often we see franchise agreements which make reference to Acts of Parliament and it is important to note that not all laws made at Westminster apply in Scotland. For example, references to the Contracts (Rights of Third Parties) Act 1999 or the Mental Health Act 1983, which are commonly found in franchise agreements, do not apply north of the border.
Similarly, there may be acts of the Scottish Parliament which will apply to your franchisees in Scotland which do not apply to those franchisees in England. With the promise of enhanced devolution and new powers to the Scottish Parliament, we anticipate an increasing number of legislative differences in the coming years, particularly if the newly-formed body ‘Revenue Scotland’ is granted VAT and other tax collection responsibilities.
Occasionally franchise systems require that a franchisee becomes a member of a particular governing or regulatory body. Depending on the nature of the business, there may be different regulatory bodies north and south of the border. For example in the education sector, the regulator for education establishments in England is Ofsted whereas in Scotland it is Her Majesty’s Inspectorate of Education. Similarly in the healthcare sector, the regulatory body in England is the Care Quality Commission, whereas in Scotland it is the Care Inspectorate.
Franchisors need to be aware of these distinctions and adapt their franchise agreements accordingly; even simple things like references to DBS (formerly CRB) checks should be amended to include reference to the appropriate Scottish disclosure body – Disclosure Scotland.
As noted above, the law relating to property is substantially different in Scotland and we would always recommend that any clauses in a franchise agreement dealing with property matters be reviewed by a Scottish qualified solicitor. For example, one important distinction is that the Landlord and Tenant Act 1954 does not apply in Scotland. Therefore, tenants do not have an automatic right to agree a new lease following the end of their current lease. The National Conditions of Sale are also not applicable in Scotland and it is rare to see Deeds of Option being used.
It’s also important to note that the legal terminology used north and south of the border differs. For example, legal terms such as “assignment”, “tort”, “judgement”, “injunction”, “specific performance” and “personal representatives”, if used within a franchise agreement, should all, ideally, be amended to reflect the equivalent Scottish law terms.
This is by no means an exhaustive list of the differences between Scottish and English law, there are many other differences that we have not been able to address including Scottish specific provisions regarding personal bankruptcy (known as sequestration) or the different approach to the execution of documents in Scotland which, thankfully, has become much more efficient thanks to the Legal Writings (Counterparts and Delivery) (Scotland) Act 2015.
In short, there is a lot to be considered from a legal point of view to ensure enforceability of your franchise agreement in Scotland. However, the solution is actually very simple; there is no need to re-draft your franchise agreement.
Instead, our recommendation is to engage a Scottish qualified solicitor – preferably one experienced in franchising – to prepare a short (3-4 page) document called a ‘Scottish Addendum’. This document should set out any alterations required to the franchise agreement to ensure enforceability and once it is signed it should be stapled to the front of agreement. We usually refer to this process as “putting a kilt on your Franchise Agreement” and would strongly recommend that all franchisors seeking to expand in Scotland adopt this approach.
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This article originally appeared on the British Franchise Association website www.thebfa.org