Driving school franchise termination

[andycm]

Hi all,

I am hoping someone can give me some advice on terminating a driving school franchise agreement. I have 18 months left to run but I want to cancel as I’m not enjoying the job.

I have already complained to the driving school that I am not happy but they are of course no help at all as they want their money and that is their sole focus which is understandable.

The franchise agreement I have signed makes no provisions for me terminating the agreement, only the franchisor.

The franchise agreement states that I am protected under the Consumer Credit Act 1974. I have read the sections of the act on termination of hire agreements and believe it would be section 99 that would apply. I am however having trouble interpreting whether or not I am liable under the act of settling any remaining franchise fees.

The franchisor is stating that I have no right to termination which seems contrary to what I’m reading in the Consumer Credit Act 1974 and is stating that I would owe every remaining franchise fee 18 months worth of £200 per week.

Any advice would be much appreciated.

[atticus]

It is not clear from what you have written how the Consumer Credit Act applies. Was there a loan?

I would wish to see all the franchise documents to be able to advise.

[andycm]

Hi Atticus,

Thanks for the reply. On the agreement is states above the section for my address and signature; “Hire Agreement regulated by the Consumer Credit Act 1974”

Please could you let me know where to send you the agreement? Please forgive me I’m not a regular on the forum.

[atticus]

Please read my signature: I do not advise by PM.

My doubts about whether the Consumer Credit Act can apply relate to the fact that a franchise agreement is an arrangement between businesses: the franchisee operates the franchised business.

You can upload documents here. click on the paperclip in the blue bit on a reply box.

[PallasAthena]

Are they leasing the car to you under some sort of financing agreement that forms part of the overall franchise? Maybe that is what the CCA reference is to? Upload the agreement as Atticus has requested (cover up all information that could identify you, including reference numbers)

[andycm]

Hi Atticus,

I’ve attached the agreement for your perusal here. Apologies for the PM.

It is my understanding that this is a Hire Agreement and section 101 would apply.

From my limited understanding of section 101 and the small amount of research that I have done, voluntary termination is not possible however I’ve found this on Keystone Law’s website with regard cancellation;

“As mentioned above, the hire company or its broker must make certain pre-contract disclosures before a regulated hire contract is signed, otherwise the hire contract is only enforceable by court order. Enforcement includes repossessing the equipment.

A hire contract would likely be interpreted as a “cancellable agreement” where the prior negotiations included oral statements made in the sole trader’s presence by someone acting for or on behalf of the hire company or broker, and the agreement was signed by the sole trader at his or her premises.

In that case, the hire company would have had a duty to notify the sole trader of cancellation rights in relation to the hire contract, otherwise the hire contract would not have been properly ‘executed’ and can only be enforced by court order (including repossessing the equipment).

A court can also take this opportunity to declare that a hire company is not entitled to exercise specified rights in relation to the credit agreement or any linked transaction, as explained below.”

I have also attached the first correspondence received from the AA representative that signed me up. I was not made aware of my cancellation rights or lack of. I did query when I could cancel and this was the response that I got;

“Many thanks for that



If you fail three times the contract is null and void



If you want to leave once in the contract



12 weeks’ notice prior to the renewal of the contract”

As you can see, this is vague information. I didn’t realise that I would have to wait 2 years for this renewal. When I passed the final exam, the contract effectively renewed in my view at the time so had I know that I would be tied in for 2 years I would not have signed up.

The contract itself states on page 9 that the contract is not cancellable under the Consumer Credit Act 1974 however according to this other section of Keystone Law’s website, this is incorrect; “Termination rights

There is a right for the sole trader to terminate a consumer hire agreement after 18 months if the agreement provides for payments which exceed £1,500 in any year (subject to some other exceptions).”

Of course 18 months have not elapsed on the contract, only 6 months have however I was not made aware of this by the AA and they have not been forthcoming with explaining any of this and my rights.

I have contacted a franchise expert to explore my options with regard to getting the final bill down if I were to cancel. He is stating that I could claim something under net present value, the fact that they will no longer need to support me or provide me with any services, the car will no longer have wear and tear put on it by myself and the likelihood of them finding a replacement franchise owner within the region I work in, should be very high due to a instructor shortage.

There are other factors at play such as the fact that I have complained to the AA multiple times about the training that they provided. I was initially training with another driving school but chose AA due to the cost of the weekly franchise fee. The training with the other driving school was all in person 1:1 tuition, the AA was mostly online via zoom not exactly a good replacement for 1:1. The initial correspondence says nothing about remote learning only 1:1 tuition.

Basically, had I known that I would need to conduct most of my training via zoom and that the contract was “not cancellable” and I would be tied into the contract and bound for 2 years once I passed the final exam (which I did), I would not have agreed had I been explained all of this by the AA along with my rights under Consumer Credit Act 1974.

The original contract I signed was for the trainee franchise which looks much like the attached one. I again was not made aware of any of my rights under the Consumer Credit Act 1974 despite it being regulated by it.

[andycm]

Thanks Pallasathena, I’ve just replied on here and uploaded. Apologies for the long text, I’ve tried to cover everything in one go.

[atticus]

OK, so we now know that your franchise is of a driving instruction business, and that as part of the overall arrangement you have signed up to hire a car.

The full detailed terms appear to be set out in that 33 page document. That will take time to work through. You should take professional advice.

[andycm]

Hi Atticus,
Thanks for your response. I would be very grateful for your advice on this. Would a high street solicitor provide advice on this or would I need someone who specialises in franchises?

[atticus]

You would do well to find someone with knowledge of commercial contracts, and preferably franchise arrangements. I have in the past advised in such cases, but you need to understand that it takes time to understand how they all fit together. All franchise businesses are different.

[R0b]

Responding here, per the OP's request.

I would agree that if you want in-depth advice, you need to seek independent legal advice, someone with franchise agreement and consumer credit knowledge.

Having said that, here are my initial thoughts:

1. A "cancellable agreement" means that depending on how or where the agreement is signed, the hirer will have a cooling off period following signature of the agreement, up to 14 days. If you cancel the agreement within the cooling off period, you are also agreeing to pay up front the remainder of the instalments in one go. Typically, this is common where the debtor or hirer finds a better loan rate with a bank or third party and decides to take out a loan that way instead of through the creditor. This is useful under a hire-purchase or conditional sale agreement I do not see any benefit for a hire agreement since you would have to return the car as you would have accelerated the termination of the agreement. In any event, you appear to be out of time since you are past the latest period for cancelling i.e. 14 days.

2. A consumer credit agreement is not a cancellable agreement if you signed it at the premises of the AA, a third party acting who is connected to the transaction or AA's negotiator acting on their behalf. If you never signed at any one of these premises then the agreement may be an improperly executed agreement and may not be enforced without a court order. However, there may be consequences such as defaults being reported on your credit file, and I would be somewhat concerned if your sole defence for getting out of the contract is an improperly executed agreement. Based on what a cancellable agreement does, I'm not convinced you have been severely prejudiced by losing the opportunity to cancel the agreement, for the reasons I mentioned in point 1, and so I think chances would be low for a court to refuse AA to enforce the agreement.

3. Regarding section 101 (the right to voluntary terminate a hire agreement) the right does not apply if your total annual instalments exceed £1,500. If you are paying £200 per week, assuming you pay £800 per month, multiplied by 12, the annual payments are £9,600, way more than the limit of £1,500. Section 101 therefore does not apply. nevertheless, you can only terminate after 18 months, so even if this did apply, you cannot get out of the agreement until that 18 month period so you have to continue paying for the monthly instalments up until that date.

4. As for the rest of your issues, sounds like you failed to make sufficient inquiries before committing to the agreement and also reading the all of its terms and raising any questions you are unsure of, or at least getting some legal advice on the risks and liabilities. If you have an issue about the credit agreement, you can complain to the Financial Ombudsman per the terms of the contract but at the end of the day, doing a bad deal does not excuse you from the contract. A harsh lesson to learn, but I'm sure you won't make the same mistake again.

5. Final point to say as Atticus has already alluded to, the franchise agreement is made up of multiple terms and conditions, not just the consumer credit agreement. It prohibits you from terminating before the minimum term and if you don't give sufficient advance notice to terminate, then the agreement will renew automatically for a "Successive Term" which by definition would be a new two-year term. If you refuse to perform your obligations, you may end up being liable for a lot more than just the vehicle rentals because the terms say you will have to indemnify the AA for all of the losses including loss of profits, revenue, loss of opportunities etc. In other words, you make them whole.

[echat11]

I don't know if this is possible, again you will need to do some research, seek guidance from a an expert in the field, but most franchises can be sold. See if that option is available.

[andycm]

Hi Rob,

Apologies for the late response on this. Thanks very much for your detailed answer it is much appreciated.

When you say; “If you refuse to perform your obligations, you may end up being liable for a lot more than just the vehicle rentals because the terms say you will have to indemnify the AA for all of the losses including loss of profits, revenue, loss of opportunities etc. In other words, you make them whole.”

Let’s say that I hand back my ADI badge meaning I breached the contract and the AA terminated the agreement and take the car back as the contract says. I can see that the contract states that I would be liable for the remaining weekly fees.
Would I have any recourse under the Consumer Rights Act 2015 under the section of unfair contractual terms or could I make a case for it? As the AA have taken back the product that I have been paying for (the car). Am I even considered a consumer under this section of the contract?

[R0b]

When I mentioned that point, I was deliberately vague because it's not clear what sort of losses beyond weekly fees AA might have been expecting. For example, they may claim loss of profits or revenue if they were entitled to take a % of your fees charged to finding you a student or maybe a referral fee. It's not something they can pluck out of thin air and it doesn't have to be exactly perfect but they do need to prove that they have lost out on additional revenue or other business opportunities during the term of your contract.

As to your question about being a consumer, the short answer is that the CRA is unlikely to apply. The definition of a consumer in the CRA means an individual acting for purposes that are wholly or mainly outside that individual's trade, business, craft or profession. By entering into this contract with the AA, I don't think it can be said that you were acting outside your trade, business or profession when you signed the contract.

That said, you still have the right to claim under the Unfair Contract Terms Act 1977 which is similar to the unfair contract terms provision in the CRA but much less favourable since it is intended to cover B2B relationships. I must say that anyone wanting to rely on UCTA alone as a means to get out of a contract will need to have exceptionally good reasons because the starting point that the court will take is that they will rarely interfere with B2B transactions, irrespective of whether or not one party made a bad deal or failed to read the terms and conditions. Since UCTA became law, there is not a great deal of published case law on this area of law simply because it is seen to be very difficult to overcome the requirements for an unfair contract term to be established.

[andycm]

Thanks a lot Rob.

Just one final question about this;

“Section 101 therefore does not apply. nevertheless, you can only terminate after 18 months, so even if this did apply, you cannot get out of the agreement until that 18 month period so you have to continue paying for the monthly instalments up until that date.”

I’m now about 6 months into the successive term, is it possible for me to cancel this contract for 1 years time now and just pay them 1 year’s of franchise fees? Or does the 18 months have to have run its course before I can cancel?