Sunshine Coast Hinterland Times

When you scour the ‘Businesses For Sale’ columns in the newspapers you will notice that many of the listed businesses are franchise businesses. Franchising is becoming an increasingly popular way of doing business and essentially is an arrangement where franchisees are granted the right to distribute a product or carry out a business idea – such as McDonalds Hamburger restaurants – within a specified territory or at a particular location using a trade mark or trade name or idea in exchange for the payment of fees or royalties.

If you are thinking of buying a franchise it is important that you are aware of some of the peculiarities of the legal framework of franchises. Australia has specific federal legislation dealing with franchising by way of the Franchising Code of Conduct prescribed under section 51AE of the Trade Practices Act. Although changes to this code are being introduced from 1 March 2008, the basic concepts and requirements for disclosure remain.

The Franchise Agreement is the very framework for the business and therefore a very comprehensive document. It is usually favours the Franchisor’s interests heavily and any changes to its terms are often difficult to obtain because of the Franchisor’s need for consistency of the terms between all its franchisees.

The Code provides for a 7 day cooling off period to allow a prospective franchisee to pull out in case of a change of mind. The Code also requires the Franchisor to disclose certain important information to the prospective Franchisee at least 14 days before you enter into a Franchise Agreement including information such as:

• Details of the Franchisor’s business and business experience and any current litigation affecting the Franchisor or the Franchise;
• The franchise territory – whether it is exclusive or non-exclusive, whether the Franchisor can change your territory and whether you can operate another similar business outside the territory;
• Details of any existing franchises and the sales, transfers or buy backs of these existing franchises;
• Monies you are required to pay and whether you are entitled to a refund; (e) How this franchise can be sold or terminated;
• The obligations generally of the parties involved.

As well as the disclosed information from the Franchisor you should also make your own independent enquiries of the franchise business and find out information such as the quality of the products or services including your own experiences, other competitors in the market place, how well the business is marketed and run and the public’s perception of the business generally.

Tove Easton – PRINCIPAL LAWYER @ Easton Lawyers

62 Maple Street, Maleny Ph 5494 3511

6b/3 Obi Obi Road, Mapleton Ph 5478 6500

tove@eastonlawyers.com.au