Entering into a Franchise Agreement presents both opportunities and risks for a potential Franchisee.
Equally, Franchisors face many onerous duties under the Franchising Code of Conduct.
Whether you are a Franchisor or a Franchisee, our commercial law team at MatthewsFolbigg can provide you with the legal guidance you require.
What is a franchise?
A franchise is a business relationship whereby the owner (the Franchisor) grants to a purchaser (the Franchisee) a licence to use the intellectual property and business systems of the Franchisor for a fixed term, subject to the terms of the Franchise Agreement.
How do you become a franchisee?
A Franchisee may buy a franchised business direct from the Franchisor, or they may buy an existing franchised business from a Franchisee (subject to the consent of the Franchisor).
What are the advantages and disadvantages of the franchise model?
The buyer of a franchised business is purchasing a business with an established brand name and goodwill. The Franchisor will also be responsible for marketing the business and supplying equipment and inventory to the Franchisee.
However, there are significant start-up and ongoing costs involved in running a franchised business, and Franchisors typically place many restrictions on the Franchisee’s conduct of the business (to protect the goodwill of the Franchisor).
Franchises are governed by the Franchising Code of Conduct. Among other things, the Code:
- provides for a cooling off period during which Franchisees can terminate the Agreement without penalty
- requires the parties to act in good faith
- sets out the circumstances in which a Franchisor can terminate the Franchise Agreement
- requires Franchisors to provide prospective Franchisees with a disclosure document before they sign the Franchise Agreement
- contains significant penalties for non-compliance
If a term of a Franchise Agreement conflicts with the Code, it may be declared void (unenforceable) by the courts.
A typical Franchise Agreement will cover the following terms:
- grant of licence
- term and renewal options
- territory of the franchised business
- fees and expenses
- conduct of the business
- equipment and supplies
- training and employees
- warranties, indemnities and guarantees
- intellectual property rights
- non-compete restrictions
- assignment and transfer
- dispute resolution
As stated above, Franchisors are also required to provide a disclosure document to the Franchisee at least 14 days prior to the Franchisee signing the Franchise Agreement.
How can we help?
MatthewsFolbigg’s commercial lawyers have experience acting for both Franchisors and Franchisees. We can provide you with independent legal advice at each and every stage of the franchise process, from buying or selling a franchised business, drafting or reviewing the Franchise Agreement and Disclosure Document for compliance with the Code, and structuring advice.
We have a team of solicitors, including accredited specialists in business law, who are ready to provide you with practical and succinct legal advice and solutions.
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