What is a Franchise Agreement?

A franchise agreement is a legal agreement between the franchisee and the franchisor. It outlines the terms and conditions in which the franchisee will operate under the franchisor’s brand, systems and supports. The agreement is subject to the Franchising Code of Conduct, which outlines the obligations and rights of the franchisee and the franchisor.

The franchise agreement is made up of several key elements including:

1. Grant of Franchise which details the rights granted to the franchisee when purchasing the franchise. This includes the use of trading names, trademarks and business systems needed to operate the franchise.
2. Franchise fees which outline the initial buy in fee, as well as any ongoing fees such as marketing contributions and royalties.
3. The geographical area or territory in which the franchise can operate. It should also outline if this geographical area is non-exclusive or exclusive to the franchisee.
4. The set of operational standards and procedures the franchisee must follow to maintain consistency and quality across the brand.
5. If there is any ongoing training and support provided by the franchisor to assist the franchisee to operate the franchise.
6. The marketing and advertising obligations of both the franchisee and the franchisor, and if the franchisee needs to contribute to a marketing or advertising fund.
7. The terms and conditions of renewal in the franchise agreement. It may also outline how long the existing agreement is in place.
8. The conditions under which the franchisee and franchisor can terminate the agreement.
9. Mechanisms in place for dispute resolution, such as mediation or arbitration.
10. Any confidentiality and non-compete clauses. This is design to protect the franchisor’s proprietary information and restrict the franchisee from competing with the franchisor for the term set out in the agreement.

It is imperative that both the franchisee and the franchisor seek independent legal advice to ensure that the agreement is legal and complies with Australian regulations.

What is the Franchising Code of Conduct?

The Franchising Code of Conduct comes under the Competition and Consumer Act 2010. It is a mandatory code that must be followed by the franchisee and the franchisor. The code of conduct is designed to promote transparency and fairness in the industry. It sets out the rights and obligations of the franchisee and the franchisor, and includes things such as:

• Disclosure Requirements: The franchisor must provide disclosure documents to the franchisee before they purchase the franchise. This includes information about the business and operating system, litigation history and financial details.
• Cooling-off Period:  The cooling-off period for the franchisee after entering into an agreement. The franchisee can terminate the agreement during this period.
• Dispute Resolution: A framework to resolve any disputes between the franchisee and the franchisor.
• Good Faith: The franchisee and the franchisor are required to act in good faith when dealing with each other. The code of conduct regulates the conduct of the franchisee and franchisor to ensure they act in good faith. 
• Termination and Renewal: The rights and obligations regarding the termination or renewal of the agreement.

If you are thinking of entering into a franchise agreement, contact us for a free thirty-minute consultation with a lawyer specialising in franchises.

Any information on this website is general in nature and should not be taken as personal legal advice. We recommend that you speak to a lawyer about your personal circumstances.

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