A franchise is a business structure whereby one party (the ‘franchisor’) provides the right to use its business name and other intellectual property, and sell or distribute its goods or services, to another party (‘the franchisee’).
This right is usually provided to the franchisee at a determined fee for a fixed period of time. The nature and terms of the relationship are often set out in a Franchise Agreement. Other written agreements such as licences and supply agreements are sometimes also required.
As a business model franchising has a number of appealing aspects for both franchisors and franchisees.
Firstly, the franchise model provides a means for a franchisor to grow a business without needing to have at their disposal the very large amounts of capital that are often needed to fund a full infrastructure development.
Secondly, it allows individual business owners (franchisees) to buy into a successful business model that has a proven formula. Even though franchisees are bound by the terms of the Franchise Agreement they still have a degree of independence while being able to access all of the benefits that can be achieved by being part of a larger business structure or organisation.
All franchises in Australia are regulated under the Franchising Code of Conduct (‘the Code’), put in place by the Competition and Consumer Act 2010.
The Code was updated on 1 January 2015, and it specifies rights and responsibilities of both the franchisor and franchisee. In particular, the Code sets out certain processes and requirements that a franchisor must comply with before a franchise agreement is entered into, including pre-contract disclosure of important information to the franchisee.
Navigating your way around franchises and their agreements can be a daunting task with heavy consequences for both franchisors and franchisees who fail to meet their respective obligations.
As the laws governing Franchise Agreements continue to evolve and grow, it is important, whether you are a franchisor or franchisee, that you have access to specialist legal advice.
Tetlow Legal’s experienced solicitors are able to assist and advise in respect of all aspects of franchising arrangements including:
- Reviewing and updating existing Franchise Agreements and updating and drafting new agreements;
- Advising in relation to ancillary documents such as disclosure documents;
- Regulatory compliance including obligations under the Code;
- Options and conditions of sale including on-selling your franchise;
- Commercial and retail leases necessary to operate your franchise business;
- Negotiating with your franchisor/franchisee; and
- Renewals and termination of Franchise Agreements.
Being involved in a franchise arrangement can be satisfying and rewarding both personally and financially. However, it is essential that you understand both your obligations and your rights in relation to any Franchise Agreement.