Franchise Agreement is defined under the Franchising Code of Conduct (the Code).
The Code is administered by the Australian Competition & Consumer Commission (ACCC) and will be applicable to all agreements whether written, oral or implied where the Franchisor grants to the Franchisee the right to carry on a business under which the Franchisee supplies or distributes goods or services in Australia under a Franchisor controlled system or marketing plan.
The system generally involves:-
- the conduct of a business utilising Franchisor-owned trademarks, logos and copyrighted systems/recipes;
- the payment of upfront investment fees;
- payment for the use of the goods & services;
- percentage-based fees on gross or net income as a royalty fee;
- training fees;
- taking a sub-lease of the business premises from the Franchisor (or directly from the Landlord of premises approved by the Franchisor); and
- the right to conduct the business within an agreed and defined territory.
Prior to the purchase of a Franchise, the Purchaser must be given:-
- A mandatory Disclosure Agreement under the Code which includes financial details, franchisee costs and litigation;
- a draft Franchise Agreement;
- a copy of the Franchising Code;
- the right to investigate the franchise and its existing Franchisees to determine the suitability, functionality and assistance from the Franchisor.
The Code provides a seven (7) day cooling off period after a Contract is signed.
In entering into a Franchise Agreement, the Franchisee must consider the following:-
- whether they possess the skills, aptitude and financial resources to carry out the franchised business;
- whether the franchised business is secure and has growth potential;
- can the Franchisee work under a “registered”, duplicated system with regular reporting;
- are there other similar business in the territory;
- the reputation of the Franchise and the contentment or otherwise of other Franchisees in the system;
- whether the Franchisee is satisfied with the quality of the goods and services provided by the system and the pricing model;
- the number of Franchisees already in existence and how many are being run profitably and how many have been ceased operation or had litigation/dispute;
- is there sufficient reward/profitability;
- is the territory broad enough;
- can the Franchisor introduce or compete with the Franchisee within the territory.
If you are looking at purchasing a Franchised Business, PWD can assist you.