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.