Franchisees facing freedom at a price

Dec 21 2006 By Iain Laing, The Journal

Franchisees left to keep trading after the collapse of DP Furniture Express have been asked to pay as much as £200,000 each to win freedom from their contracts.

The new owner of the franchise, furniture wholesaler Mohammad Saeed from Leeds, paid an average of under £6,500 for the rights to each of 17 DP Furniture Express franchises, adding up to more than £100,000.

And, through his Cobco 808 vehicle, Mr Saeed says they must stay within the franchise model - or pay him a substantial sum to leave, worked out through a formula based on what payments he would be due if they remained.

But the franchisees say they are not receiving any of the services they were promised when they first took on the DP Furniture Express name, so should be able to walk away without penalty.

Despite a face-to-face meeting two weeks ago, the two sides are still a long way apart in their valuation of the franchises - and the matter looks set to be settled by legal action.

The franchisees had offered Mr Saeed the money he paid for it to settle the matter, but this was refused. One of the franchisees, who did not want to be named, said: "We offered them what they paid for it. It was a goodwill gesture to them.

"There used to be 70 company and franchise stores under the original company, and we were promised there would be 120 in three years, with national advertising supporting them. Now there are just 17 left, with no company stores. The model is broken."

Franchisees have claimed that they require more support from Boxing Day onwards, their busiest time of the year.

"We are having to operate for our most important period ourselves, and provide our own sales and marketing campaign," said one franchisee.

Cobco 808 was formed to buy the DP Furniture Express franchise, and operates from the same offices as Mr Saeed's Italian Furniture Company in Halifax. John Pratt, solicitor at Hamilton Pratt law firm in Birmingham, which advises Cobco, said the amount Cobco has asked from franchisees to leave DP Furniture Express would have been worked out on the basis of how the courts would calculate a damages claim.

The franchisees' lawyer is William Parsloe, of Field Fisher Waterhouse in London. He said: "In situations like these, you always get one or two franchisees unhappy, but this is the entire network. They believe they are receiving no franchise service. It's all been crystal clear that they want to leave and they are trying to do that cleanly and correctly.

"They now have two options - sue for breach of contract, or simply tell the franchisor that the contract is terminated - and risk action being taken against them."

Mr Parsloe said: "They (Cobco) bought for £125,000, including £12,000 they were owed by the previous owner, but are now asking for something quite colossal from the franchisees, to buy themselves out."

In October, Cobco bought the franchise side of the 22-year-old business which two years ago had 80 branches and sales of £60m after it went into administration. The stores it did not buy have since closed.