Are you considering entering into a franchise agreement but don’t yet understand your cooling-off period rights? Entering into a franchise agreement represents a huge financial and time commitment on the part of both parties. Further, by taking on the branding and systems of the franchisor, and paying a pretty penny for that privilege, the franchisee is placing a lot of trust in the franchisor; indeed the success or otherwise of the business they are purchasing is largely dependent on how the franchisor conducts the franchise network.
Given their nature, its common sense for franchisees to take the time to really think about whether they want to enter a particular franchise, to examine the workings of the franchise, and to obtain professional advice before they sign on the dotted line.
And that’s where the prescriptive cooling-off period provisions, as contained in the franchising code of conduct (‘the Code’), come into play.
The Franchising Code of Conduct
The Code requires franchisors to disclose certain information, and provide specific documents to a person who proposes to become a franchisee, or to renew or extend a franchise agreement. This information, which includes the franchise agreement, the disclosure document, a copy of the Code and an information statement published by the ACCC, is intended to assist the franchisee party to make an informed decision about whether to proceed with the agreement.
Under the Code this bundle of documents must be provided to a franchisee or prospective franchisee at least 14 days before they:
- enter into a franchise agreement (or an agreement to enter into a franchise agreement);
- pay any non-refundable money or other valuable consideration to you or an associate in connection with the franchise agreement; or
- renew or extend their agreement.
This 14 days is that valuable period for the franchisee to think, analyse, and be advised.
Amending the Documents
But if the documents are amended within those 14 days, either as a result of negotiations between the parties or otherwise, does the 14 day period need to start again? In summary:
- if the changes are minor and/ or were made at the request of the franchisee, then no; but
- if the changes are more substantial, such as to alter a key term of the contract or its operation (particularly if those changes are contrary to the interest of the franchisee) then yes.
If you need extra guidance and legal advice on what your rights are in relation to the franchise agreement, get in touch with LegalVision on 1300 544 755. Our franchise lawyers are experts in the space and will provide you with a fixed-fee advice after a free obligation-free consultation.