If you’re planning on becoming a franchisee in the near future or you are a franchisee and want to know your legal rights this blog post is a guide to what your legal rights are.
The best place to start for a new franchisee is to read the franchising code which outlines your rights and responsibilities. Listed below are your rights:
Documents franchisor must give you
- Franchise Code
- Information Statement – once you’ve entered into an agreement you will receive an information statement from the franchisor. The risks & rewards are also included in this statement.
- Disclosure Document – the franchisor will give you a disclosure statement which needs to be in a certain format as shown in this template
- Franchise Agreement, at least 14 days before you
- Enter into agreement or
- Make a non-refundable payment to the franchisor
Copy of Agreements
if you are leasing from the franchisor, they must also give you a signed copy of the lease within a month. You can also get copies of:
- Intellectual property agreements
- Security agreements including a guarantee, mortgage or loan agreement
- Confidentiality agreement
- Restraint agreement
Copy of Financial Statements
If you are paying a marketing fund you have the right to receive detailed annual financial statements.
- Must receive it within 4 months after the end of the last financial year (FY)
- Should be sufficient detail of the receipts and expenses
- Statement should be audited by a registered company auditor
- Should receive the statement within 30 days of it being prepared
Knowledge about Material Facts
The franchisor must disclose any material facts not mentioned in the disclosure statement within 2 weeks of learning them. Examples include:
- Ownership – change in majority ownership or control
- Legal cases – criminal or civil judgements
- Intellectual property change in ownership or control
Your Rights at the End of the Agreement
Franchisor must give written notice if they plan to extend or enter into a new agreement.
- If 6 months or longer – at least 6 months before end of your term
- If less than 6 months – at least 1 month before your agreement ends
No Release from Liability
Franchisor can’t ask you to sign an agreement with either of these clauses:
- General release – of franchisor’s liability towards you
- Waiver – any verbal or written representation made by franchisor
Settling Disputes & Who Pays
Any mediation or court action must occur in the state or territory where you are located.
The mediation costs are split with the franchisor and any clauses that reject these two will have no effect
Restraint of Trade Clauses
You won’t be bound by a restraint in your franchise agreement if you have given notice seeking to extend your agreement and these conditions are met:
- Not in breach of the agreement
- No breaches of intellectual property or confidentiality agreement during the term
- Not received compensation for goodwill because agreement has not been extended
Transferring Your Agreement
Franchisor must respond in writing about whether they agree to a franchisee transfer
- If they do not agree they need to give you reasons
- If they agree they need to tell you whether any conditions need to be met
Ending Your Agreement
Cooling off period – you may end your franchise agreement within 7 days of:
- You entering into the agreement
- You making any payment under the agreement
- If you end the agreement during this period, the franchisor must pay you back within 14 days
Notice of termination – the franchisor must give you reasonable notice in writing.
- If it is a breach they need to tell you what to do to fix the breach and give a reasonable amount of time to action this
No Capital Expenditure
Franchisor must not make you spend significant capital expenditure for a franchise business. These expenses include:
- Outlined in disclosure document
- Paid by all or majority of franchisees
- Made to comply with legislative obligations
- Necessary to improve business
Correct Use of Marketing Fees
Entitled to have funds that you have paid into marketing fees and advertising only to pay for epxenses that:
- Disclosed in disclosure document
- Legitimate advertising expenses
- Agreed by majority of franchisees
- Pay reasonable cost of administering and audting a marketing fund
When the agreement ends, you can request in writing that your details are not revealed.
In addition to your privacy rights, franchisor must not prevent your freedom to form an association or ability to associate with other franchisees for a lawful purpose.
In addition, you are entitled to dispute management processes. You can send a written notice to the franchisor with:
- Nature of dispute
- Outcome you desire
- Action you think will fix the issue
If your dispute is not resolved within 3 weeks, either party may refer to a mediator.
If you are uncertain about your rights and responsibilities consider seeking legal advice from one of our franchise lawyers.
Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.