Franchise AgreementA basic Franchise Agreement outlining the commercial relationship between a franchisor and a potential franchisee.
This is a basic franchise agreement, outlining the commercial relationship between a franchisor and a potential franchisee.
The provisions of a franchise agreement should be carefully considered as each transaction is often very specific in nature. It is therefore recommended to seek legal advice when preparing such an agreement. Certain legal issues regarding the commercial relationship should be handled with care, in particular:
- ownership of the various tangible and intangible assets involved in the delivery of goods or services to a customer via the franchise network;
- what rights need to be granted to the franchisee to allow this delivery;
- what rights need to be reserved to the franchisor;
- provisions regarding employment and premises;
- any legal restrictions affecting the business; and
- methods of payment.
What does the Franchise Agreement cover?
- the fees associated with the franchise;
- the application of the system manual;
- restrictions on the territory of the business;
- obligations on both parties to run a quality business;
- vehicles and equipment;
- confidential information;
- use of business name; and
- breach and dispute resolution.
What is franchising?
Franchising is not a business itself, but a way of doing business. A franchise agreement records the respective rights and responsibilities of the franchisor and the franchisee (and sometimes others) in the delivery of a relatively homogenous customer experience across a network of businesses which operate under the same brand.
The parties’ rights and responsibilities can differ substantially between franchise systems, so this precedent should be used as a starting point, and a general guide only.
The detailed system compliance, and day to day business compliance issues, are often addressed by the operations manual, as this facilitates changes that are necessary as a result of new technology, new products or services or changed consumer preferences. This agreement makes reference to, and incorporates, that manual.
How are franchises regulated by law?
Within this precedent, there are several references to clauses from the Franchising Code of Conduct set out in Schedule 1 of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Cth) (Code). The Code requires certain provisions to be included in franchise agreements and prohibits the inclusion of certain other provisions. Code references in this precedent should be checked, and clauses of this agreement drafted having regard to the relevant provisions of the Code.
A draft franchise agreement provided by a franchisor to a franchisee during the disclosure period before entering into the franchise must be in the form in which it is to be executed. Changes can be made to the franchise agreement within the 14-day disclosure period only if changes relate to:
- giving effect to a franchisee’s request;
- filling in required particulars;
- reflecting changes of address or other circumstances;
- making minor clarifications; or
- correcting errors or references: clause 9(3) of the Code.
Motor vehicle dealership agreements
This precedent is not intended to be used as a motor vehicle dealership agreement (including a new vehicle dealership agreement). Such an agreement is taken to be a “franchise agreement” within the meaning of the Code. However, the Code imposes different requirements on motor vehicle dealership agreements compared with other franchise agreements in relation to certain matters.