Buying a Franchised Business

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Franchised businesses differ from other businesses in a number of ways. They offer the ability to run your business using the franchisor’s “system” in a way that allows you to gain benefit from the name, marks, brand, image, and general “know-how” of a well established and generally more expansive organisation.

Whilst operating a franchised business provides you with a great number of benefits, there are also a number of pitfalls that you need to look out for when entering into a franchise agreement.

The Franchising Code

Franchising in Australia is governed by the provisions of the Franchising Code of Conduct (“the Code”) which regulates the conduct of both franchisors and franchisees. It also provides penalties for non-compliance.

What Documents Should I Receive as a Franchisee?

The Code requires that at least 14 days before you enter into the franchise agreement or make a non-refundable payment to the franchisor, the franchisor must provide you with a copy of the following documents:

  1. A copy of the Code;
  2. A copy of the franchisor’s “Disclosure Document”; and
  3. A copy of the franchise agreement.

Disclosure Document

The Disclosure Document is designed to provide you with information about the franchise so that you can make an informed decision as to whether or not you wish to enter into a franchise agreement with the franchisor.
Although it is important that you consider all of the information contained within a Disclosure Document, I generally advise my clients to pay attention to the following:

  1. The experience of the franchisor, including the experience of its directors and key personnel;
  2. Whether the franchisor has been involved in previous litigation or other Court proceedings;
  3. The details of other current franchisees and their respective locations;
  4. The number of franchisees that have exited the system during the past three financial years;
  5. The fees payable by you during the franchise term, including any additional costs and expenses that may be passed on to you by the franchisor; and
  6. The franchisor’s financial reports and accounts for the past three financial years.

Franchise Agreement

Your franchise agreement is just like any other contract and as such it is imperative that you read it and fully understand it before signing it. You should pay particular attention to the following:

  1. Whether or not your site and/or territory are exclusive to you and whether or not the Franchisor can grant additional franchises within your area, or even operate their own business in competition with you.
  2. The extent of the fees, levies, and/or other expenses that you are required to pay under the franchise system.
  3. The exact nature of the rights that you are granted under the franchise system and the restrictions on your use of the franchisor’s brand.
  4. Whether or not the lease of your business premises is to be held in your name or in the name of the franchisor.
  5. Whether or not you are required to undertake a fit-out or refurbishment of the business premises during the franchise term.
  6. The extent of the training/assistance that will be provided to you by the franchisor at the beginning of, and throughout, the franchise term.
  7. The process that is involved should you wish to sell your franchised business at some stage in the future.

Entering into a franchise agreement is a significant undertaking. It is essential that anyone considering entering into a franchise agreement seeks legal advice before doing so.

Please contact me if you have any questions regarding a franchised business, or franchising in general.

The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.


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