Requirements of a Franchise Agreement?

A franchise is a business relationship which gives one party, known as the franchisee, the right to sell the products and/or services of the other party, being the franchisor.

When a party chooses to operate a franchise they enter into a franchise agreement with the franchisor. The franchise will be governed by the franchise agreement, a legally binding document which sets out certain modes of operation, behaviours, and expectations for the operation of the franchise business. Importantly for the franchisor, it guides how they will retain control over the franchise name, brand, and intellectual property.

All franchising participants must abide by the Franchising Code of Conduct. The Code sets out certain requirements for disclosure, good faith, and provides mechanisms for resolving disputes. Both the franchisor and the franchisee have specific obligations guiding how they must operate the  business, in addition to complying with legislative provisions,  such as taxation laws, health and safety and workplace laws.

Whilst the franchise agreement will define a specific period of operation, it may end earlier due to termination for a breach of contract, sale of a franchise, insolvency, or extend beyond an initial defined period due to renewal/extension of the franchise agreement.

What Should a Franchise Agreement Contain?

A Franchise Agreement will contain specific components relevant to a particular business. In addition to a range of additional or miscellaneous clauses and provisions, a franchise agreement should include as a minimum:

  • Grant of a right to use the franchisors brand;
  • Key dates and specific information about operating under the franchise brand;
  • Any restrictions on operating in a geographic territory;
  • Fees and costs associated with purchasing of the franchise;
  • Advertising and branding obligations under the franchise;
  • Protection of intellectual property;
  • Franchise terms and information relevant to renewal of the franchise;
  • Services offered by the franchisor;
  • Training and skilling information;
  • Methods for quality control and relevant minimum requirements;
  • Information about transferring interests;
  • Obligations upon expiration of the franchise;
  • Relationship between the parties;
  • Allocation of risk, including indemnity and liability provisions;
  • Non-compete clauses and restraints on trade;
  • Insurance requirements; and
  • Dispute resolution clauses.

If you need legal advice about a franchise agreement, Robinson Nielsen Legal have the skills and experience to assist you. It is always preferable to take preventative action where possible and ensure your franchise agreement is precise, accurate and aligned to your business operation.

Call Robinson Nielsen Legal to discuss how we might assist you: 07 3036 0649 or tracey@robinsonnielsen.com.au