Important terms of the franchise contract
In Australia, franchising is one of the fastest-growing business sectors. There are a number of advantages as well as certain drawbacks when buying a franchise. Before entering a franchise agreement the franchisor is obliged to send you a disclosure document, the franchise agreement, and a copy of the Franchising Code. It is recommended the franchisee undertake a basic research to assess the short and long-term feasibility of a business.
The franchise agreement is the most important document that stipulates your rights and obligations when operating franchising. It is a legally binding contract that contains various clauses in relation to legal, practical and operational issues. It is recommended you seek advice from a lawyer, accountant and business adviser in reviewing the agreement.
The following terms of the franchise contract should be closely examined:
1. Length of franchise agreement. If your initial costs require a large investment, you need to make sure that the franchise term is sufficient to recoup your investment;
2. Franchise area. Review if the franchisor determines the site of the business. In this case you should explore whether the site has been previously used;
3. Operating standards. You should clarify what policies, procedures and standards are in place under the franchise agreement. They may cover advertising, uniforms and training, fitting and signage, accounting practice and quality standards;
4. Intellectual property. This clause is one of the most important as it covers the conditions of use of trademarks, patents etc;
5. Pricing. Franchisees are responsible for setting their own prices. While a franchisor may provide you with a recommended price list, it cannot impose a particular price on you, or a minimum price below which goods or services may not be sold. Though, a franchisor is permitted to set a maximum price for goods or services.
6. Sourcing stock and services. A franchisor cannot force you to acquire goods and services from a particular supplier or a list of nominated suppliers.
7. Fees payable. You should fully understand what the initial fees and on-going payments are. Up-front fees cover fittings and equipment, marketing and training and on-going payments may include royalties, interest payments or levies to the franchisor
8. Termination. You should review numerous clauses related to the termination of the franchise agreement (eg, upon breach or early exit).
In summary, before entering into or renewing an agreement, you should ensure you fully understand what will happen at the end of the contract term, and what your rights and responsibilities will be. Also, notice what dispute resolution process is available.
To have your franchise agreement reviewed or for any franchise matters speak with Quinn Lawyers. Call us on 02 9223 9166 or contact us here.