Franchise Agreement Renewals: Key Legal Considerations for Chemist Franchisors

In Short

• Renewal is not automatic. You must follow the notice, fee and procedural requirements in your Franchise Agreement.
• The franchisor must give updated documents (including the disclosure document and key facts sheet) at least 14 days before renewal.
• Chemist franchises have extra legal requirements, including pharmacy registration and ownership rules that vary by state or territory.

Tips for Businesses

Before renewing, review your Franchise Agreement early to understand the notice period, fees, and renewal steps. Ensure the pharmacy meets your state’s registration and ownership requirements, and confirm they remain valid at renewal. Consider taking legal advice to negotiate fair renewal terms and protect your commercial interests.

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Table of Contents

• Understanding Your Franchise Agreement 
• Documentation Requirements 
• Special Considerations For Chemists
• Negotiating Renewal Terms 
• Key Takeaways
• Frequently Asked Questions

Renewing a franchise agreement is a crucial process for both franchisors and franchisees in the chemist industry. The renewal process involves key legal and commercial considerations to ensure a smooth transition and ongoing franchise success. This article will explore the essential elements of franchise agreement renewals for chemist businesses, helping franchisors and franchisees navigate this important phase effectively.

Understanding Your Franchise Agreement 

Your Franchise Agreement is the starting point for any renewal. Familiarise yourself with the renewal procedures in the Franchise Agreement, as they play a crucial role in the renewal process. Your Franchise Agreement contains specific requirements that determine how, and whether, you can renew it, even if others seem similar. Some of the most common and important requirements to be aware of are the notice requirements and renewal fees. 

Notice Requirement

Almost all franchise agreements contain a notice requirement for renewal. The franchisee must notify the franchisor of their renewal request within the required timeframe before the initial term ends. The Franchising Code of Conduct (Code) sets notice requirements based on the length of the initial term. However, your Franchise Agreement may vary these requirements, so review it carefully. Both the franchisee and franchisor should diarise these notice requirement dates to ensure they do not miss them.

Renewal Fee

Renewal often requires payment of renewal fees, usually agreed when the original Franchise Agreement is signed. Franchisees should consider this fee early and include it as a business expense, as it can be substantial.

Documentation Requirements 

The Code also sets certain requirements for the documentation that the franchisor must provide to the franchisee. Both parties must understand these requirements to make a well-informed decision about renewing the Franchise Agreement. The documents that the franchisor must provide are:

1. a copy of the franchise agreement in the form in which it is to be executed;
2. a copy of the disclosure document relating to the franchise;
3. a copy of the key facts sheet relating to the franchise; and
4. a copy of the code

If the franchisor is leasing the premises to the franchisee, additional documents may also be required. 

The Code also mandates that the franchisor must provide these documents to the franchisee at least 14 days before the renewal or extension of the franchise agreement.

Special Considerations For Chemists

While what has been discussed up until now has been common for all types of franchises, there are special considerations that need to be followed for a chemist as a specific set of laws governs them, however, for the purposes of these laws chemists are referred to as pharmacies.  These laws differ from state to state, so it is important to have a lawyer review your franchise for specific advice. However, the following will provide a summary of the common features across all jurisdictions.   

Registration

All Australian States and Territories, except Queensland, have a legal requirement for pharmacy registration. This normally includes a set of specific requirements that the pharmacy must meet, such as passing floor plans and premises inspections, having specific equipment, and applying for a licence to carry on a pharmacy business.

Registration is likely to be a condition of any renewal, so the franchisee must ensure they are registered in line with the specific requirements of their state before any agreement on renewal can take place.

Ownership

All States and Territories set limitations on who can own a pharmacy business. While these limitations differ across jurisdictions, there is often a requirement that the business owner be a pharmacist or a pharmacist’s company. However, the list of who may own a pharmacy varies widely, so seek specific advice based on the business’ location.

For renewals, the owner of the franchise business must still be a pharmacist or fall into any of the other allowances of that jurisdiction. If not, a renewal will not be possible.

Negotiating Renewal Terms 

When a chemist franchise agreement is due for renewal, it presents an opportunity for both franchisors and franchisees to review and negotiate the terms of their ongoing relationship. Franchisors and franchisees should approach renewal negotiations to balance their own commercial interests with the needs of the other to maintain a profitable and harmonious franchise network. Key negotiation areas may include the renewal term length, any changes to franchise fees or royalty rates, updated performance targets, and the scope of the franchisor’s marketing and support services. 

Franchisors should also consider the specific challenges and opportunities facing the chemist industry, such as changes to the Pharmaceutical Benefits Scheme (PBS) regulations, the growth of online and discount chemist models, and chemists’ increasing role in delivering broader health services. By proactively addressing these issues and working collaboratively with franchisees to adopt the franchise model as needed, chemist franchisors can enhance their businesses’ long-term sustainability and success.

Managing a Franchise Network

This publication offers guidance on managing your franchise network effectively to achieve success, ensure franchisee satisfaction, and maintain legal compliance.

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Key Takeaways

Renewing a chemist franchise agreement involves a range of complex legal and commercial considerations that require careful attention from both franchisors and franchisees. To ensure a successful renewal process and protect their respective interests, it is highly recommended that parties seek the advice of experienced franchise lawyers who can provide tailored guidance on the specific requirements and challenges of the chemist industry.

If you need assistance with renewing your chemist franchise agreement, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions