For a franchisor, attracting business can be a lengthy process. Once a potential franchisee seems ready to join the franchise network, all you’d want them to do is sign on the dotted line. Many seasoned franchisors know better than to rush a potential franchisee, and any potential franchisee needs to be provided with 14 days before any executed documents exchange hands.
The Short Answer: Franchising Code of Conduct
The Franchising Code of Conduct requires that potential franchisees be provided with a number of documents, including:
- The franchise agreement;
- The disclosure document; and
- The Franchising Code of Conduct (including the Information Statement).
The documents are important for any potential franchisee to understand their obligations in the franchise arrangement. At this stage, it is common for franchisors to provide pro forma documents. Together with these documents, clause 9 and clause 10 of the Franchising Code of Conduct also prescribes a minimum of 14 days before a potential franchisee can sign the agreements.
So I Should Just Do It?
Franchisors need to comply with the Franchising Code of Conduct, or they may otherwise be hit with penalties by regulatory authorities, including the Australian Competition and Consumer Commission. But this is not the only reason you should provide potential franchisees with the 14-day period, there are also other reasons:
- You can sort through the serious franchisees from ones that may just be “looking around”;
- You can ensure that the franchisees understand their obligations to you, which will help in the smooth running of the franchise network generally; and
- You will be able to clarify any of your verbal discussions by providing the written terms and conditions, and if necessary, including any special conditions.
What Happens After the 14 Days?
After the 14 days, the potential franchisee will be able to sign the documents. This is usually when the franchisor notifies their solicitor to draft personalised franchise documents, as opposed to the pro forma documents.
Before you take any money from a potential franchisee, it is best practice (as well as required by the Franchising Code of Conduct) to receive a statement from them outlining that they have read and have had a reasonable opportunity to understand the franchise agreement, disclosure document and the Franchising Code of Conduct.
As a franchisor, it is important to understand your obligations under the Franchising Code of Conduct, particularly in relation to clause 9 and clause 10. As with many aspects of franchising, a large component has to do with the process. By ensuring you comply with the procedural aspects of entering into the agreement, you will be able to remove any doubt as to the validity of the agreement in the future.
Questions about your franchise? Ask our franchise lawyers on 1300 544 755.