What exactly is a franchise agreement?
A franchise agreement is a legally binding contract between a franchisor and a franchisee that outlines each party’s rights and obligations.
It grants you the authority to operate a business within the franchisor’s network as a franchise buyer. Reviewing and signing one is an important step in purchasing a franchise because it serves as the foundation of your legal business relationship and determines how your business will operate.
To purchase and operate a franchise, you must sign a franchise agreement.
What is covered by a franchise agreement?
Your franchise agreement will outline the terms and conditions of your specific franchise relationship, but it must adhere to the Franchising Code of Conduct guidelines. The code governs franchisors’ and franchisees’ rights and responsibilities in Australia.
A franchise agreement must include the following provisions:
How long does the agreement last?
The geographic area that you will serve (your territory or ‘patch’)
Restriction on where, when, and how you can conduct your own advertising or marketing.
The fees you owe, what they are for, and how to pay them. This includes everything from marketing, training, and utilities to termination fees and royalties paid to the franchisor.
Any applicable codes of conduct
Your responsibilities to the franchisor in terms of reporting sales, income, and expenses
Advertisement, training, support, and logistics are all responsibilities of the franchisor.
In addition to the duties of the franchisor and franchisee, the agreement must include contractual obligations such as:
How to Renew the Contract
What happens if the contract is terminated?
Processes for resolving disputes
Procedures to follow if the contract is violated
A franchise agreement must be accompanied by a disclosure document from the franchisor, which provides additional information about the business. Other documents, such as the franchise operations manual or consents to the Privacy Act, may also be mentioned in the official contract. These documents must be read in conjunction with the franchise agreement because they are an important part of your franchise relationship.
Who is in charge of drafting a franchise agreement?
The franchise agreement will be provided by the franchisor.
Most franchise agreements are complex and can be over 50 pages long, so you’ll need the assistance of a lawyer and an accountant to work through the document. It is advantageous to hire a lawyer who specialises in franchising. They’ll assist you in asking questions, making changes, and communicating with the franchisor during the negotiation process.
A well-established franchise is unlikely to change its terms, but it never hurts to ask. Remember, you’ll be signing the contract, not your lawyer, so make sure you read through each clause and understand what you’re getting into.
Remember…
Signing a franchise agreement entails more than just putting pen to paper. The terms of your agreement will set the tone and ground rules for what should be a long and fruitful business relationship.
You’ll be in the best position to begin your journey as a franchisee if you examine the details and have a solid understanding of what you’re getting into.
