Earlier this year, a significant change to the Franchising Code of Conduct (the Code) meant that franchisors could no longer seek to exclude pre-contractual warranties. Previously, it was commonplace for franchise agreements to contain a clause expressly excluding any warranties made by the franchisor to the franchisee. Additionally, most franchise agreements include an ‘entire agreement’ clause whereby anything not written in the contract does not form a contractual term.
Why the Change?
The driver of the legislative change was the number of franchisees relying on promises or assurances made to them by franchisors during pre-contractual negotiations. These promises or assurances were usually not incorporated into the relevant franchise agreements. Franchisors subsequently relied on an entire agreement clause and/or the clause excluding pre-contractual warranties.
Now, franchisors need to take greater care in what they represent or promise to franchisees or potential franchisees. These clauses will no longer provide them with an escape when the franchisee seeks to enforce or rely upon that pre-contractual representation or promise.
What is a Warranties Schedule?
The franchise community in response to this legislative change now incorporates a warranties schedule into franchise agreements. This sets out the assurances and warranties for the franchisee to rely on when the standard form franchise agreement does not include them. The benefit of having it in writing is obvious. The parties from the outset clearly understand what the additional assurance or promise actually is, and can refer to the warranties schedule to resolve any future disputes or misunderstandings.
What does a Warranties Schedule Cover?
Commonly a Warranties Schedule may cover, among other things:
- Additional training, and
- First right options and referrals to be made by the franchisor to the franchisee.
Conclusion
If you are considering entering into a franchise agreement, it is sensible to request the warranties schedule include any promises or assurances the franchisor makes. The warranties schedule will form an annexure to the agreement.
It may be daunting sifting through such a large pile of documents to confirm whether the franchisor included any pre-contractual promises. LegalVision’s experienced franchise lawyers would be delighted to assist you in both requesting and drafting the inclusion of a warranties schedule. Questions? Please get in touch on 1300 544 755.