Franchise Lawyers

A franchise is business system associated with a particular brand or trademark, where one party (the franchisor) grants to an individual, company or trust (known as the franchisee) the right to operate their own business (known as the franchised business) using the brand or trademark and following the system established by the franchisor.  The franchisee pays a franchise fee and/or ongoing fees or royalties during the term of the agreement in exchange for the right to operate under the franchise system.

The Franchising Code of Conduct (the Code) is a mandatory code under the Competition and Consumer Act 2010 which governs all franchises in Australia and provides certain protections for franchisees.  Where a franchise system meets the definition of a franchise under the Code, a franchisor must ensure they comply with all requirements of the Code.

(a) Franchise Agreement

A Franchise Agreement is the main document which governs the operation of franchised businesses.  Franchise Agreements are often long and complex contracts which set out the rights and obligations of both franchisor and franchisee.  Ensuring that the rights and obligations of both parties are clearly set out is essential to the smooth running of a franchise.

Franchisees are granted the right to use the business model, goodwill and IP of the franchisor subject to specific conditions.   Franchise Agreements set out the term of the franchise and the fees a franchisee will be required to pay in operating a franchised business, as well as many other obligations in operating the franchise.

For franchisors, it is important to have the right agreement in place to govern your relationship with franchisees, clearly setting out your requirements for conducting the franchised business, use of IP and ensuring compliance with the Code.  The value of IP is often underestimated and leaving it unprotected can damage the franchise system.  As such, it is essential to ensure appropriate restrictions are contained in the Franchise Agreement to protect your brand and reputation in ways relevant to your particular franchise.

(b) Disclosure Document for Franchisee

All franchisors are required to prepare and maintain a Disclosure Document which complies with the Code.  This is an important document which sets out extensive information in relation to the franchise system, the franchisor and current and former franchisees in a form prescribed by the Code.

The Disclosure Documents includes an estimate of the costs a franchisee will incur in establishing the franchised business and the ongoing costs which will be incurred it operating the business.

Franchisees should ensure they thoroughly review the Disclosure Document before entering into any Franchise Agreement.

(c) Lease or licence agreement

Where the franchise is operated from a premises, a lease will usually be required.  In some circumstances, the franchisee will be required to enter into a lease directly with the landlord.  Alternatively, the franchisor may enter into a lease of the premises and then grant the franchisee a sublease or licence to occupy the premises.

Franchisees should ensure they understand that the rights and obligations pursuant to the lease or licence.  We review and provide advice in relation any proposed lease to ensure you understand your obligations.

(d) Operations manual

Operations manuals are commonly used in franchise systems and set out the day-to-day requirements in operating a franchised business.  Franchisees should review the operations manual and familiarise themselves with the contents at an early opportunity to ensure they understand all aspects of the franchised business prior to entering into a Franchise Agreement

(e) Sale documents

Where the franchised business is being purchased from an existing franchisee, a sale of business agreement will also be required to govern the sale of the franchised business from the existing franchisee to the new franchisee.

(f) Other documents

Franchisees will also be provided with other documents, such as certificates of legal and financial advice which will need to be signed prior to entering into a Franchise Agreement.

Other related agreements such as supply agreements may also be required when entering into a Franchise Agreement.  We advise on all documentation issued to ensure you understand your obligations.

When buying a franchise, whether directly from the franchisor or from an existing franchisee, it is important that you understand the transaction you are entering into and the risks associated with it.

Entering into a Franchise Agreement is a big commitment.  Franchisees should ensure they undertake a thorough due diligence before committing to buying a franchise, or signing any documentation for the purchase of a franchised business.

Financial advice should be sought from an experienced accountant in relation to the financial position of the franchised business and franchisor and the viability and likely profitability of the franchised business.

Legal advice should be sought from a lawyer experienced in franchising to understand the obligations pursuant the Franchise Agreement, including the risks of entering into the agreement.

For franchisees it is important that you understand your rights and obligations in the relevant franchise system.   Coulter Legal provides clear and easy to understand advice about your obligations in entering into a Franchise Agreement and the risks that should be considered.

Whether you are a franchisor or franchisee, we use our experience in franchising to give you sound advice to ensure the transactions you are entering into are appropriate for you and that you understand your rights and obligations.

For franchisors, we can assist you to prepare all required franchise documents and ensure you meet your obligations under the Code and all other legal requirements.