Australia’s franchise industry is in good shape!  There are currently more than 1,100 business format franchise systems bringing in $144 billion of revenue and contributing $65 billion to the Australian economy, with new entrants into the franchise sector coming predominantly from the retail sector.

In this article, we will look at some practical tips for managing the legal aspects of franchising and the new chapter of the Franchising Code of Conduct (Code) that came into effect in January this year.

For the first time, it is proposed that the ACCC will have powers to issue infringement notices of up to $8,500 for body corporate (otherwise $1,700) and seek penalties of up to $51,000 in the Federal Court for breaches of the Code.  Franchisees and prospective franchisees are the primary beneficiaries of the new Code, both directly through provisions such as legislated good faith obligation and indirectly through the enhanced enforcement tools given to the ACCC.

In addition to the stronger power conferred by the Code to the ACCC and the courts, the Code also prohibits certain provisions from any franchise agreement e.g. certain indemnity and waivers of representations in favour of the franchisor.

What to Consider in Your Agreement: A Checklist

After careful research, due diligence and business planning, it is important for the franchise buyer to pay close attention to the following points when reaching the stage of understanding and negotiating the franchise agreement.

1.
Fees
? Upfront fees, ongoing royalties, marketing fund contributions and sometimes, the necessary expenditure for fitting out the store plus any additional expenses
2.
Franchise territory
? Your territory and whether your business has an exclusive right to operate in such territory
3.
Leasing arrangements
? Ensure lease terms correspond with the franchise agreement e.g. term, trading hours, subletting/assignment, default
4.
Operations, training and support
? Understand what training and technical support the franchisor offers to new franchisees
5.
End of term arrangement
? It is important to understand the terms and conditions of termination and the ongoing obligations. These include the right to repossess equipment, fittings or stock of the franchised outlet, right of first refusal and ongoing obligations such as confidentiality, intellectual property and restraint of trade.

For more information on the Franchising Code of Conduct or for any assistance with franchise agreements, contact Sophia Chen at Sophia.chen@sourcelegal.com.au.

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By | Published On: 21st May, 2015 | Categories: Contract law, Guides |