Entering into a franchise agreement

The franchise agreement is a legally binding document spelling out the rights and responsibilities of both the franchisor and franchisee.

What should I do before I sign the franchise agreement?

Before signing the franchise agreement, it's important you obtain as much information about the franchise as possible. To help you with this, the Franchising Code of Conduct (Franchising Code) requires that franchisors give you, the prospective franchisee:

  • a copy of the Franchising Code
  • a disclosure document
  • a copy of the franchise agreement in its final form
  • a short information sheet outlining the risks and rewards of franchising.

These documents need to be provided to you at least 14 days before you start, renew or extend a franchise agreement or pay a non-refundable deposit.

As a prospective franchisee, it's important to understand what is being offered and your rights and obligations under the Franchising Code. You should also be aware that a franchise agreement only gives you the right to operate that business for the life of the franchise agreement. There is no guarantee that the agreement will be renewed, unless specifically negotiated under the agreement.

Run through these questions before you sign an agreement:

What are the details of the business?

  • Do you have all the relevant information on the business?
  • What is the track record of the franchisor?
  • Does the franchise have a strategic plan and what are the plans for the future?
  • What is the success rate of other franchisees in the same business?
  • Will you have an exclusive territory?

What is included in the sale?

  • Does the sale include the use of business name, products, reputation/goodwill, site location, advertising budget or back-up assistance?
  • What are your intellectual property rights and obligations?
  • What are the terms of sale of goods? Can you purchase them from outside the franchise network?
  • Are there any other expenditures that you may be required to make later, such as for refits?

What are your rights and obligations?

  • What are your occupational health and safety obligations?
  • What are your obligations upon termination of the franchise?
  • Are there guidelines/costs when you sell the franchise?
  • Are the operating procedures, employee responsibilities, and standards spelled out in the franchise operating manual? Can the franchisor change the requirements in the operating manual at any time?
  • If you have a retail lease, is it in your name or the franchisor's name? Does the term of the franchise agreement differ from the term of the retail lease?

What fees do you need to pay?

  • An initial franchise purchase fee?
  • Franchise renewal fees?
  • Franchise service fees/royalties?
  • Advertising fees?
  • Transfer fees?
  • Training fees?
  • Payments to a third party?
  • How are dispute resolution costs shared?

What to do...

Thanks for your feedback. If you have any ideas on how we can improve, we'd love to hear them.

Please provide your comments in the feedback form.

You might also be interested in