Scotland's separate legal system and what franchise agreements must change

What to take away

Contract law differences that affect franchise drafting

Scotland has its own legal system. The law of contract, property, evidence and court procedure all differ, and those differences reach into every franchise agreement signed by a Scottish franchisee.

An English-drafted franchise agreement usually assumes English common law. It uses phrases like "the parties agree" and "reasonable endeavours" without checking what a Scottish court would do with them. In many cases the result is similar, but in some it is not. The differences matter most at the edges: formation, third-party rights, restraints of trade, property occupation and remedies.

The starting point is that a franchise agreement is a commercial contract. Scots contract law recognises offer, acceptance, consideration and intention to create legal relations, much like English law. But the detail differs.

Scots law has no doctrine of consideration in the same form, though in practice commercial agreements rely on the parties' agreement rather than a strict bargain test.

That matters for franchise renewals, variations and side letters. A variation that an English lawyer would treat as supported by consideration may need a different analysis in Scotland. The safe route is to state expressly that the variation is intended to be legally binding and to record it in writing.

Another difference is the treatment of good faith. Scots law has a concept of good faith in contract, but it is not a general duty that overrides clear terms. A Scottish court will usually enforce what the parties wrote. If the franchisor wants discretion over approvals, site selection or marketing spend, the agreement should say so plainly.

Contract formation, third-party rights and restraint clauses in Scotland

Scots contract law treats formation in a way that will feel familiar, but the proof of it can differ. In Scotland, the written document is not always the whole contract. Prior correspondence, heads of terms and even verbal assurances can be admitted as evidence in ways that surprise English-trained lawyers.

That has a practical consequence for franchise sales. Everything said during the recruitment process, in emails and at discovery days, can become part of the factual matrix. Franchisors should keep a clear record and avoid loose promises about territory, earnings or support.

The Contracts (Rights of Third Parties) Act 1999 applies in Scotland, as it does in England and Wales. A franchise agreement can give rights to third parties if it says so. That is useful for guarantors, subtenants and lenders, but it can also create unexpected beneficiaries.

A clause that says "no third-party rights" is common and should be included unless there is a reason not to.

Restraint of trade clauses are the flashpoint. Franchise agreements typically stop a former franchisee from competing in a defined area for a defined period. Scots law will enforce such a clause only if it protects a legitimate interest and goes no further than reasonably necessary.

The statutory background includes the Deregulation and Contracting Out Act 1994, which dealt with certain restrictive trade practices. It did not create a general franchise exemption, so restraints still stand or fall on the common law test.

A Scottish court will look at the actual business, the area and the duration, not just the label.

That is why the franchise label does not decide which rules apply. A restraint that works for a mobile service franchise may be unenforceable for a fixed-site retail franchise. The clause must match the model.

Franchisors should also check post-termination restraints against the franchisee's ability to earn a living. Scottish courts are willing to strike down clauses that are wider than needed. A 12-month, UK-wide ban on any similar business is unlikely to survive. A 6-month ban limited to the former territory has a better chance.

Property leases and security of tenure north of the border

Scottish property leases are a separate regime. The terminology differs: what England calls a lease is often a lease in Scotland too, but the concepts of tenure, irritancy and registration are distinct. Franchisors used to English business tenancies often miss this.

The biggest difference is security of tenure. In England and Wales, the Landlord and Tenant Act 1954 gives business tenants a statutory right to renew. In Scotland, the equivalent protection comes from the lease itself and from the common law, not from a single equivalent Act.

A Scottish commercial lease can be contracted out, but the mechanics and the terminology are not the same.

A franchisee occupying premises under a Scottish lease may have stronger or weaker rights than expected. If the lease is for a fixed term with no renewal option, the franchisee may have to leave at the end. If it is a tacit relocation, the lease can continue year on year unless either party gives notice.

Tacit relocation is a Scottish doctrine that English lawyers routinely overlook.

Agricultural holdings are a separate example of how Scottish property law diverges. The Agricultural Holdings (Scotland) Act 2003 sets out rules on tenant's improvements and other matters that can affect rural franchise premises such as farm shops or activity centres.

It is not a general franchise statute, but it shows that Scottish property law has its own statutes and its own logic.

Franchisors should also check title conditions. In Scotland, real burdens and servitudes can restrict how premises are used. A franchise that needs deliveries at 6am or signage on a listed building may find that the title conditions forbid it. These are registered against the property and bind successors.

A Scottish property lease for a franchise should cover:

Franchisors should also consider whether the lease is in the franchisee's name or the franchisor's. If the franchisor holds the lease and sublets to the franchisee, the security of tenure analysis changes again. There is no single answer, but the choice should be deliberate.

Employment tribunal practice and the Employment Rights Act 1996 in Scotland

The Employment Rights Act 1996 applies across the United Kingdom. It sets out the statutory framework for unfair dismissal, redundancy, notice and other rights. Franchisees who employ staff in Scotland are covered by it, as are franchisors who employ area managers or support staff there.

What differs is the tribunal system. Employment tribunals in Scotland are administered separately from those in England and Wales. The procedural rules are similar but not identical, and the case management culture can differ. A claim presented in Glasgow will not be handled in the same building or under the same administration as one in Manchester.

The Employment Rights Act 1996 is the main source of individual employment rights, but it is not the only one. The working time rules, minimum wage and equality legislation also apply. Franchisors should not assume that a Scottish franchisee can be treated as self-employed just because the agreement says so. Tribunals look at the reality of the relationship.

That is a live risk in franchise models where the franchisee personally works in the business alongside staff. If the franchisee is effectively controlled by the franchisor, a tribunal may find an employment relationship exists. The consequences include unpaid tax, holiday pay and pension contributions.

The Advisory, Conciliation and Arbitration Service - GOV.UK provides guidance and conciliation across Great Britain. Its early conciliation service is a required step before most employment tribunal claims. In Scotland, Acas operates alongside the tribunal service, and settlement discussions often start there.

Franchisors should also note the remedy differences. Scottish tribunals can order reinstatement or re-engagement, and compensation is calculated under the same statutory framework. But the practical outcome depends on the evidence and the tribunal's view of the employer's conduct. A franchisor that ignores a grievance procedure may find the award increased.

Employment tribunal practice in Scotland also has its own time limits and claim presentation rules. A claim must normally be presented within three months of the act complained of. The clock starts earlier than many employers expect. Franchisors should keep records of dates, meetings and correspondence.

For franchise networks with staff in both Scotland and England, the safest approach is a single HR policy that meets the higher standard. That means written contracts, a grievance procedure, and documented performance management. It also means checking that any settlement agreement is valid in Scotland.

Dispute resolution: Court of Session, sheriff courts and arbitration

Where a franchise dispute goes depends on the amount and the subject matter. Scotland has its own court structure. The Court of Session is the supreme civil court, based in Edinburgh. The sheriff courts handle most commercial cases at local level, with sheriff appeal courts above them in some matters.

The Court of Session hears high-value or complex commercial actions. It has a commercial court within it that deals with business disputes. A franchise dispute worth hundreds of thousands of pounds may end up there. Smaller claims, including many contract and property disputes, start in the sheriff court.

The choice of court is not just about value. It is about procedure, speed and cost. The Court of Session has more formal pleadings and a different timetable. Sheriff courts are more local and often quicker for straightforward claims.

A franchise agreement that names the English courts may create problems if the dispute is about Scottish property or a Scottish franchisee.

Arbitration is an alternative. Scotland has its own arbitration framework under the Arbitration (Scotland) Act 2010. It is based on the UNCITRAL Model Law, like the English Arbitration Act, but it is separate legislation. An arbitration clause that refers to English law and English arbitration may not work well for a Scottish dispute.

Arbitration can be useful for franchise networks that want confidentiality. It can also be faster than court for technical disputes. But it is not always cheaper, and the award is enforceable in the same way as a court judgment. The clause should name the seat of arbitration and the rules.

Mediation is another option. Acas offers conciliation in employment matters, and commercial mediation is available across Scotland. A franchise agreement can require mediation before litigation. That is often sensible, but the clause should be clear about who pays and what happens if mediation fails.

Franchisors should also consider jurisdiction clauses carefully. A clause that says "the courts of England and Wales" may be enforced in Scotland under the rules on jurisdiction, but it may be challenged if the dispute concerns Scottish land or a Scottish consumer. The safest approach is to name the Scottish courts for Scottish franchisees.

The Scottish Courts and Tribunals Service publishes court forms, fees and guidance. Under the Arbitration (Scotland) Act 2010, parties can choose a seat such as Edinburgh or Glasgow and adopt the Scottish Arbitration Rules in schedule 1, or institutional rules such as those of the Scottish Arbitration Centre.

Governing law, jurisdiction and service of notices

Governing law and jurisdiction clauses are the most important part of a cross-border franchise agreement. They decide which law applies and which courts hear the case. In a Scotland-facing agreement, both should say Scotland.

A clause that says "the laws of England and Wales" will be applied by a Scottish court if the parties chose it. But the court will still apply Scottish procedure and may apply mandatory Scottish rules, such as those on property or employment. The result can be a hybrid that neither party intended.

Jurisdiction clauses should be specific. "The courts of Scotland" is clear. "The courts of the United Kingdom" is not, because there is no single UK court system for civil disputes. A clause that names the Court of Session or the sheriff courts is even clearer.

For example, a governing law clause should read: "This agreement is governed by the law of Scotland." A jurisdiction clause: "The parties submit to the exclusive jurisdiction of the Scottish courts." A notices clause: "Notices must be sent to the addresses in schedule 1 and are deemed received on the second working day after posting."

Service of notices is a related trap. An English-drafted agreement often allows service by post to an English address. If the franchisee is in Scotland, that may not be effective. The agreement should allow service at the franchisee's Scottish address and should state when a notice is deemed received.

Email service is common but should be handled carefully. The clause should name the email address and say that a notice sent after 5pm is treated as received the next working day. That avoids arguments about whether a weekend email was valid.

For a solicitor qualified in Scots law, the Law Society of Scotland runs a Find a Solicitor referral service.

For franchise systems with operations across the UK, the franchise rules in the UK differ by jurisdiction. A single governing law clause may not fit all. Some franchisors use separate agreements for Scotland, which is cleaner but adds cost.

Data protection is another area where UK GDPR applies across the UK, but the Information Commissioner's Office enforces it. A Scottish franchisee handling customer data must comply. The agreement should say who is the controller and who is the processor.

Practical checks before signing a Scottish agreement

Before signing a Scottish franchise agreement, work through the clauses that most often go wrong. This is not legal advice, but it is a practical checklist for franchisors and franchisees.

Before signing, budget for a solicitor review. Fees depend on the scope and the firm; ask for a fixed fee or an estimate. Court fees are set by the Court of Session etc. Fees Order and the Sheriff Court Fees Order, published by the Scottish Courts and Tribunals Service.

Court of Session expenses are typically higher than sheriff court because of more formal pleadings and counsel. A review of a standard franchise agreement may take a few days to a couple of weeks, depending on the number of Scottish-specific clauses.

A worked example helps. Suppose a franchisor based in Leeds grants a franchise for a coffee shop in Stirling. The English template says English law and the courts of England and Wales. The franchisee signs a Scottish lease with tacit relocation. A dispute arises about the lease renewal.

If the agreement names English law, the Scottish court may still apply Scottish property law to the lease. The franchisor may find itself in the Court of Session or the sheriff court, arguing about tacit relocation under a contract that never mentioned it. The fix is simple: use a Scottish schedule or a separate Scottish agreement.

The same applies to employment. If the franchisee employs baristas in Stirling, the Employment Rights Act 1996 applies. A claim goes to the Scottish tribunal system. The franchisor's English HR template may not include the right Acas early conciliation wording.

Due diligence should cover these points before signing. The contracts around a franchise purchase often include the franchise agreement, the lease, the loan and the guarantee. Each needs a Scottish eye. Vendor due diligence for franchise systems should disclose any Scottish-specific terms.

Franchisors should also check the British Franchise Association's code of ethics. It does not override Scots law, but it sets standards for disclosure and conduct. A Scottish franchisee can still complain to the BFA if the franchisor misleads them.

Finally, keep the agreement under review. Scots law develops, and the Scottish courts can change how they interpret restraint clauses or property rights. A clause that was safe five years ago may need revisiting. The cost of a Scottish legal review is small compared with the cost of a dispute.

Common questions