Buying a franchise can be an easy and exciting way to get into business. However, before you commit to a franchise opportunity, it’s essential to beware of some of the pitfalls and understand your rights and obligations.
What is a Franchise Agreement?
When you become part of a franchise business, you will enter a franchise agreement. The agreement is a legally binding document that sets out the rights and responsibilities of both the franchisor and franchisee. The contract will usually stipulate that:
- One party (the franchisor) grants another party (the franchisee) the right to conduct business in Australia supplying goods or services under a specific system or marketing plan substantially determined, controlled or suggested by the franchisor.
- The franchise business is associated with a particularly trademark, advertising or commercial symbol owned, used licensed or specified by the franchisor.
- The franchisee is required to pay or agree to pay an amount to the franchisor commencing or continuing the business.
Even though the business is not referred to as a franchise, if it meets the above definition, it will be covered by the Franchising Code of Conduct.
Important Due Diligence
Before you sign the franchise agreement, you should obtain as much information about the franchise as possible. You should also speak to a law firm with extensive knowledge of commercial law relating to franchises. Ensure it is a genuine business. If possible, speak to current and former franchisees about their experiences.
Ensure you understand what’s included in the sale (e.g. products, advertising, back up assistance). Find out what your health and safety obligations are, operating procedures, employee responsibilities and obligations upon termination of the franchise. What fees do you have to pay? This can include commission, renewal feeds, training fees and payments to a third party.
Signing the Agreement
If you decide to proceed, the franchisor must also provide you with:
- A disclosure document
- The franchise agreement in its final form
- A copy of the Franchising Code of Conduct
You must receive these documents at least 14 days before you sign an agreement or make a non-refundable payment and have had a reasonable opportunity to read and understand each document. You are entitled to terminate the agreement within seven days of entering into it or making a payment.
Common Pitfalls
It’s crucial to carefully consider whether entering into a franchising arrangement is the right choice for you. Many franchisees enter into the business only to regret it down the track. The reason this happens can be due to common errors like:
- Having unrealistic expectations regarding workload and money
- Lack of research into franchising as an industry
- Not seeking expert advice prior to entering a franchise
- Inadequate research regarding competition and demand for the franchise’s products or services in the area
Need Advice or Assistance with a Franchise Agreement?
If you need advice or assistance going through your franchise agreement and disclosure documents, speak to our experienced lawyers in Brisbane. As members of the Queensland Law Society, our lawyers will examine your individual circumstances and offer timely advice on the best pathway forward.
At Phoenix Law, we specialise in Family Law, Personal Injury Law, Migration Law, Commercial Law, Property Law, Litigation Dispute Resolution, Estate Planning, International Trade Law, Intellectual Property Law and Workplace Relations Law. We speak your language, with a team of multilingual lawyers ensuring our clients get the best possible understanding of Australian law. Call our law firm today on 07 3180 0908 or contact us online.
