Franchise Agreements – An Overview for First Time Franchisees

What is a Franchise Agreement?

A franchise agreement is a contract between a franchisee and a franchisor, which sets out the rights and obligations of each party during and after the term of the Franchise Agreement, including:

  • The fees payable by the franchisee;
  • The franchisee’s rights in relation to the franchisor’s intellectual property and branding;
  • The franchisee’s obligations in relation to its staff and training;
  • The parties’ rights upon the expiry or termination of the franchise agreement.

By signing a franchise agreement, a franchisee is taking on serious obligations and liabilities. It is important to always seek legal advice before signing any contract or agreement. 

The Franchising Code

The Franchising Code (the Code) applies to the parties to the Franchise Agreement and it contains a number of protections for franchisees, some of which we have outlined below.

Disclosure period

The Code requires a franchisor to provide a franchisee with the following documents at least 14 days before you enter into the franchise agreement or make any non-refundable repayments (also known as the disclosure period):

  • The final franchise agreement;
  • A copy of the Code; and
  • a disclosure document.

The Code prescribes the information that must be included in a disclosure document. Some of the important categories of information include:

  • The details of existing franchisees;
  • The number of franchised businesses that have ceased to operate, been sold or terminated within the past three financial years;
  • Whether the franchise is for an exclusive or non-exclusive territory; and
  • Details of the payments that must be made before and during the franchise agreement.

The purpose of the disclosure period is for you to take the time to comprehensively review the franchise documents before you sign them or make any financial commitment. It is important that you make use of this period and consider obtaining legal, accounting and business advice before signing any documents or making any payments.

Cooling off period

The Code also entitles a franchisee to a “cooling off” period. The “cooling off” period will allow a franchisee to terminate a new franchise agreement within seven days of the earlier of the franchisee:

  • signing a franchise agreement; and
  • making a payment under the franchise agreement.

If a franchisee terminates a franchise agreement during the cooling-off period, the franchisor must refund the franchisee all payments that it has made under the franchise agreement within fourteen days. If the franchise agreement detailed the franchisor’s expenses in entering into the franchise agreement or their method of calculation, the franchisor may deduct its reasonable expenses from the payments made by the franchisee (which can sometimes be heftier than expected).

Signing a franchise agreement can have long-lasting and costly implications. Don’t risk it, speak to one of our commercial lawyers who can provide you with advice in relation to your franchise agreement before you sign it.  

Please contact us on (07) 4052 0700 if you would like to discuss your new franchise and franchise agreement with one of our expert commercial lawyers in Cairns. 

 

 

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