Before You Sign a Franchise Agreement

A franchisor must give you copies of the Code of Conduct, Disclosure Document, Franchise Agreement (in its final format), and copies of other agreements (ie. leases) in either electronic or hard-copy form, at least 14 days before you enter into the agreement or pay the non-refundable money.

Changes have been made to the Code with effect from 1 March 2008 that increases the level of disclosure that must be made to franchisees. You can obtain a copy of the Code of Conduct and information on recent amendments to the Code from the Franchise Council of Australia website (see External Links to the right of the screen).

Before signing any binding document you should also be consulting with a legal adviser skilled in franchising law.

Know your Code of Conduct

Franchising in Australia is regulated by a mandatory Franchising Code of Conduct. The Code of Conduct sets out the rights and obligations of franchisors and franchisees and is legally binding.

The Australian Competition and Consumer Commission (ACCC) promote compliance with the Code and enforce it where necessary. This includes that franchisors must:

• not prevent franchisees from forming an association
• have a cooling off period in their franchise agreements (seven days from the date of entering the agreement or paying any monies)
• not unreasonably withhold consent to a transfer of the franchised business
• comply with the requirements when seeking to terminate a franchise agreement
• have dispute resolution processes in their franchise agreements and provide dispute resolution under the auspices of the Office of the Mediation Adviser (see External Links)

Read your Disclosure Document

After entering into a franchise agreement, a franchisor must, within four months after the end of each financial year, create a Disclosure Document for the franchise in accordance with the Code. A franchisor must give a Disclosure Document to a franchisee planning to renew or extend the scope or term of the Franchise Agreement.

The Disclosure Document must include:

• provision of lease documentation, details of marketing and other cooperative funds
• details of other agreements the franchisee is required to enter
• details of the history of the franchise site and territory (if previously granted and information on the circumstances in which the previous franchise ceased to operate)
• names and contact details of past franchisees
• details and background on the directors of the franchisor and
• other materially relevant facts

The franchisor must also disclose in writing information on any court proceedings within 14 days of becoming aware of it.

There should also be information on the franchise site and territory as follows:

• whether the franchise is for an exclusive or non-exclusive territory or limited to a particular site
• whether the franchisor or its associates may operate a business that is substantially the same as the franchise in the franchised territory
• whether the franchisor or its associates may establish other franchises that are substantially the same as the franchise in the franchised territory
• whether you may operate a business that is substantially the same as your franchise outside the franchised territory
• whether the franchisor may change the territory

What should be in a Franchise Agreement?

The Franchise Agreement deals with the various property rights owned by the franchisor and contain the operational structure and controls. It provides the franchisee with some degree of security.

It may list, amongst other things:

• the period of the agreement and initial services provided by the franchisor to set up the business ready to trade
• what continuing services will be offered to support the franchisee
• details of the trade names, trademarks, copyright materials and the business system itself
• the nature and extent of the rights granted to the franchisee including territorial rights
• the initial and continuing obligations, and operational controls imposed upon the franchisee
• conditions surrounding sale of the business and actions to be taken upon the death of the franchisee in terms of protecting the asset
• dispute mediation and termination procedures in the event of breach of contract or inability of either party to carry out the agreement

Review the Retail Lease

While retail leases aren’t unique to franchises, as a legally binding document you should ensure you understand all provisions of the lease you’re about to enter and get advice from an experienced solicitor before signing any documentation.

If you're buying a franchise with a lease, find out:

• does the lease permit assignment to any permitted assignee of the franchisee?
• does it coincide with the franchise term?
• does the lease term provide sufficient time for recovery of capital outlays?

Review the Retail Lease Agreement Checklist for questions you should ask and may have to answer before entering into a retail lease.

	Retail Lease Agreement Checklist (PDF 76Kb)
	Questions you should ask, and questions you may be asked, before signing a lease.

Read the Retail Lease Act information brochure (see External Links to the right of the screen) for a quick overview of the Retail Leases Act 2003 which is the main governing legislation for retail leasing in Victoria.