When you formally express interest in purchasing a franchise, the company that owns the franchise (“the franchisor”) must give the purchaser (“the franchisee”) a standard set of franchise documents and share certain information. The Franchising Code of Conduct (“the Code”) is a mandatory code that applies to the franchising industry and is a part of Australia’s consumer laws. The Code says that you must be given the franchise documents and information at least 14 days before you sign on as a new franchisee. This article will explain the five franchise documents every prospective franchisee needs.
1. Franchise Agreement
The franchise agreement forms the contract between you and the franchisor. The franchisor must give the franchisee a copy of the agreement that is ready to be signed and executed – the franchisor cannot just give you a draft contract.
Unlike the disclosure document (see below), the Code does not specify any particular structure for the contract. You should ensure that the powers given to the franchisor are reasonable and that the franchisee agreement adequately protects your rights.
In general terms, the franchise agreement will include information such as:
- The premises where the franchise store will be located;
- Whether you the franchise gives you an exclusive or non-exclusive territory (i.e. whether other franchises can be set up within your suburb or surrounding suburbs);
- Whether you have to supply all of the goods or services sold by the franchise; and
- Payments, including the franchise fee, establishment costs and ongoing expenses.
2. Disclosure Document
This franchise document contains information about the franchise that the franchisor is required to tell you under the Code. It should be dated and signed, and has to be in a particular format and structure that it set out at the end of the Code. It is important that the format follows the new Code, as franchisors must disclose more information than previously required.
You should review the document closely, as it will provide you with information about the franchise that can help you decide if you want to continue with your purchase. For example, the document will discuss:
- How long the franchise has been in Australia;
- Whether the franchisor has been bankrupt in the past ten years;
- The details of current franchises;
- Any intellectual property that the franchise has registered; and
- Whether you can sell goods or services online.
If there are any differences between the disclosure document and the franchise agreement, usually the franchise agreement will apply (as it is specific to the relationship between you and the franchisor). However, it is always best to clarify any differences (so that you can be clear about your rights and responsibilities).
If you want to negotiate changes to anything listed in the disclosure document, you can do this by amending the franchise agreement. The disclosure document will remain as a standard document covering the whole franchise network.
The disclosure document must be updated every financial year, and before 31 October of each year.
3. Information Statement
This document is a standard two-page document that sets out the key risks and benefits of becoming a franchisee. Although this document is also readily available online, you should ensure you get a copy from the franchisor, as this is part of their legal obligations.
4. Franchising Code of Conduct
The franchisor must give you this Code in full. Even as lawyers, we know how boring it can be to read a piece of legislation, but this document contains all the rights and responsibilities of the franchisor and franchisee. It is, therefore, helpful to review the Code to get a better understanding of how franchising works in Australia.
5. Other documents
There are various other franchise documents (such as lease agreements and contracts governing the use of intellectual property) that the franchisor must give you within varying time frames.
The volume of documents you receive can be overwhelming, but it is important to review them in detail, as they will form the basis of your franchise relationship. The Code also has specific rules around what limits the franchisor can place on your rights (such as your ability to discount prices).
We have experienced franchise lawyers who can provide a fixed-fee quote for reviewing the franchise documents and providing you with written advice, and suggested amendments. We can even help you negotiate any changes you want to make to the franchise agreement! Give us a call on 1300 544 755 – we would love to help.