THE CHEAT SHEET

Top line info on the franchise agreement.

The franchise agreement is central to your purchase of a franchise, and while each will differ in detail, there are some crucial commonalities that you need to be aware of.

WHAT IS THE FRANCHISE AGREEMENT?

It is a legally binding contract between you and the franchisor. This document outlines the obligations that you will need to fulfil as a franchisee, for the length of the franchise term you sign up to.

It gives you permission as the franchisee to use the brand and the systems associated with it in your own business.

And it outlines the roles and responsibilities of both parties: franchisee and franchisor.

While each franchise agreement will convey the rules that govern every aspect of the business, each agreement will be distinct in the detail. For instance, two agreements viewed side-by-side may set out entirely different rules and expectations around franchise territories.

A franchise agreement could be 20 pages, or a much longer document; it may use legal jargon or be written in an easy-tounderstand style.

WHEN DO I GET A COPY?

You can ask for a copy of the franchise agreement at any time in your discussions with the franchisor. However, the franchisor must give you a copy of the document at least 14 days before you sign the agreement or hand over non-refundable payments to the franchisor.

WHAT DO I DO WITH IT?

Once you receive your franchise agreement, read it - several times if possible - to ensure you understand it. It can be helpful to read it alongside the disclosure document - and if you can get access to it, the operations manual. Take notes of any questions you have and either address these with the franchisor or discuss them with your franchiseexperienced lawyer.

WHAT SHOULD I LOOK FOR?

Check the term of the agreement and whether there are options to renew it. Find out if it coincides with the length of a lease, if that’s relevant to the business model.

If the business is territory based find out whether or not you will be operating in an exclusive area, and how this is mapped.

Look at the schedule of fees.

Check what the franchisor will provide for set-up - any equipment, training, store fit-out.

Are there any minimum performance criteria you will need to adhere to?

Does the franchisor provide any income guarantees?

Will you need to provide personal guarantees?

Consider what the agreement says about suppliers and what rules you have to observe around sourcing product.

Understand what the transfer process is when you are ready to sell.

Look at the dispute process that’s outlined in the agreement - it needs to match the requirements of the Franchising Code of Conduct.

Ensure you understand what is regarded as a breach of contract, and what can lead to the franchisor terminating the agreement.

Review any clauses relating to restraints of trade both during the life of, and after the agreement expires. n

TOP TIPS Make sure you have enough time to read the document through thoroughly, so you have a good understanding of what’s included. You can take as long as you like to do this.

It’s wise to seek legal advice from a franchise lawyer early on in the process because they can advise about any inappropriate or illegal clauses included in the agreement and can negotiate any proposed changes with the franchisor’s lawyer.