The decision to start a franchise is important. As a franchisee, you are provided with a licence to perform a business activity under a franchisor’s name and according to the terms of their contract. Signing into a franchise agreement will mean you need to commit yourself to the length of the contract. Even if your agreement is only for one year, as a franchisee, it is crucial to be informed of your responsibilities. Although every franchise is different and the terms of your agreement will vary, there are a range of general responsibilities that every franchisee needs to know.
One of the fundamental aspects of franchise agreements is the requirement of both parties to act in good faith. The franchise relationship is often described as a commercial marriage between franchisee and franchisor. This means that there are often obligations each party must fulfill in order for the arrangement to remain strong and beneficial to both parties. The duty of good faith is raised in every aspect of the franchise relationship and often means that one must not act dishonestly or with an ulterior motive that would ultimately be detrimental to the relationship as a whole. This duty of good faith is normally required even when the agreement has been terminated.
Although the requirement of good faith is important, it does not mean that either party is forbidden from pursuing their own legitimate commercial interests.
The franchisor is required to provide you with the relevant franchise documentation including: an information statement, a disclosure document, the franchise agreement and a copy of the Franchising Code of Conduct. It will ultimately be your responsibility as the franchisee to do the relevant research to determine whether or not the franchise is right for you. This may include reviewing the financial earnings of the franchisor and speaking to franchisees to make your own appropriate enquiries when it comes to the day-to-day operation or success of the business. At this stage it is a good idea to speak to a specialist franchise lawyer who can run you through your franchise agreement and highlight the key issues and your obligations as franchisee.
It is common for franchise agreements to require the franchisee to maintain quality standards and to abide by a systemised operation of business. This may include buying supplies directly from the franchisor or a preferred supplier. This may also include ensuring that employees are trained according to the standard the franchisor would require. As the franchisor relies on the franchisee to maintain their good name in the market, they often include clauses in the franchise agreement that would ensure the franchisee commits to the standards required of them.
As the franchise business often relies on promotion of its brand, it is common for franchisors to require payments towards the marketing fund. The marketing fund should go solely towards marketing or advertising expenses.
Restraint of Trade
In order to protect the franchise business, franchisors often require franchisees to limit their business activities after the agreement has come to an end. This may mean that a franchisee is restricted from operating a similar business for a certain period of time.
In return for these obligations, the franchisee receives certain advantages including the ability to start a business that already has a level of success. The franchise marriage can be one that brings many benefits for both franchisor and franchisee, but it is important to be aware not only of your rights, but also your responsibilities. Our lawyers at LegalVision specialise in franchise law and will be able to guide you through the franchise process!