Franchises and the Trading Schemes Act 1996
Produced in partnership with John Pratt of Hamilton Pratt
Franchises and the Trading Schemes Act 1996

The following Commercial guidance note Produced in partnership with John Pratt of Hamilton Pratt provides comprehensive and up to date legal information covering:

  • Franchises and the Trading Schemes Act 1996
  • Introduction
  • Trading schemes—what are they?
  • Elements of a regulated trading scheme
  • Application to franchises
  • Regulation
  • Advertising
  • Cooling off and contractual provisions
  • Sanctions
  • Exclusions
  • more

Introduction

The Trading Schemes Act 1996 (TSA 1996) and subsequent regulations made under it, were introduced to regulate pyramid selling schemes because, at the time, the existing legislation contained in the Fair Trading Act 1973 (FTA 1973) was considered to be inadequate. Unfortunately and unintentionally, franchises are potentially regulated by the TSA 1996 because they may be treated as a ‘trading scheme’.

Trading schemes—what are they?

A trading scheme is defined in FTA 1973, s 118(8) as amended by TSA 1996 as:

‘…any arrangements made in connection with the carrying on of a business, whether those arrangements are made or recorded wholly or partly in writing or not.’

This ‘definition’ would appear to include virtually all agreements which businesses enter into, but not all such trading schemes are subject to regulation. FTA 1973, s 118(1) makes it clear that TSA 1996 applies only to trading schemes if:

  1. the prospect is held out to ‘participants’—which in a franchise will be franchisees—of receiving payment or benefits in respect of any of the matters specified in s 118(2), and

  2. sections 118(3) and/or 118(4) are fulfilled

All references in this Practice Note to participants are to franchisees, and all references to a promoter are to a franchisor.

Elements of a regulated trading scheme

Section 118(2) sets out the matters in respect of which the