You might remember our 25 April 2005 FranFlash on the potential impact on franchising of the Unfair Contract Terms Bill ("UCTB") which was published in the Spring of 2005. Our FranFlash explained that the UCTB would bring about a fundamental change in the way in which standard franchise agreements are regarded by the English Courts and could cause serious problems for franchisors in the UK.

In a nutshell, under the current law there is no legal requirement for clauses of a franchise agreement to be fair or reasonable (other than clauses that exclude or limit liability for breach of contract). The UCTB proposed a special protection for businesses employing 9 or fewer staff (called "micro-businesses") which would put them in much the same position as consumers. A large proportion of franchisee businesses would fall under the definition of micro-businesses. The UCTB allows micro-businesses to challenge any contractual term that has not been negotiated and is not the definition of the main subject matter of the contract or the price. If a franchisee can show that the term is unfair, it will not be enforceable.

We said in our Spring 2005 FranFlash that the UCTB was likely to become law last year. However, its progress has been slower than anticipated. The DTI has now formally responded to the draft UCTB and agreed in principle with its wording and recommendations. However, the DTI has said that it wants to further evaluate the potential impact of the cost of the proposed new laws, particularly the new protections for micro-businesses, both on the courts and commerce in general.

It appears that the proposed UCTB will still become law but until the DTI has completed its further investigations and research, it is difficult to predict when.