Franchise Agreements

Franchise Agreements

Franchise agreements are a vital part of running a franchise business in Australia. These legal contracts set the terms between the franchisor (the business owner) and the franchisee (the individual or company purchasing the right to operate under the franchisor's brand). Whether you're thinking about becoming a franchisor or franchisee, understanding the key elements of a franchise agreement is crucial to ensuring your business is protected and operates smoothly.

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What is a Franchise Agreement?

A franchise agreement is a legal document that outlines the relationship between the franchisor and franchisee. It specifies the rights, responsibilities, and obligations of both parties in relation to the operation of the franchise. The agreement covers everything from branding and trademarks to fees, training, and dispute resolution.

For franchisors, it provides the framework to expand their business by allowing others to use their brand and business model. For franchisees, it gives them the right to run a business using an established brand with support and systems already in place.

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What Australian Businesses need to be aware of:-

1. Compliance with Franchise Laws: In Australia, franchises must comply with the Franchise Code of Conduct. This is a mandatory industry code under Australian law that outlines the rights and responsibilities of both franchisors and franchisees. The code includes requirements for disclosure documents, cooling-off periods, and dispute resolution procedures. Failing to comply can result in penalties and damage to your reputation.
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2. Disclosure Obligations: Franchisors are required to provide potential franchisees with a Franchise Disclosure Document (FDD) before entering into a franchise agreement. The FDD contains important information about the franchise, including financial performance, fees, the franchisor’s history, and any litigation history. It’s important for both parties to review this document carefully.
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3. Fees and Royalties: Franchise agreements often involve various fees, such as initial franchise fees, ongoing royalties, and advertising contributions. These fees should be clearly outlined in the agreement, and it’s crucial that both franchisors and franchisees understand the financial obligations involved.
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4. Intellectual Property Protection: Intellectual property (IP) is a key asset for franchises. The agreement should clearly define how the franchisee can use the franchisor’s brand, trademarks, and other intellectual property. It's important to ensure the agreement protects these assets and provides guidelines for their proper use.
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5. Term and Renewal: Franchise agreements usually have a set term, typically between 5 to 10 years. The agreement should outline the terms of renewal or extension, ensuring both parties know their options at the end of the initial term.
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6. Dispute Resolution: Disputes can arise between franchisors and franchisees over various issues, such as fees, performance, or breaches of the agreement. A well-drafted franchise agreement should include a clear process for resolving disputes, whether through negotiation, mediation, or arbitration.

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How a Commercial Lawyer can help

Franchise agreements are complex legal documents that require careful consideration of many factors. Here’s why engaging a commercial lawyer is essential:

1. Ensuring Compliance with the Law: A commercial lawyer will ensure that your franchise agreement complies with all Australian legal requirements, including the Franchise Code of Conduct. This helps prevent legal issues down the track and ensures both parties understand their rights and obligations.
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2. Protecting your interests: Whether you’re franchising your business or investing in one, a commercial lawyer will help protect your interests. They will review the agreement to make sure it’s legally sound, fair, and doesn’t expose you to unnecessary risks.
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3. Mitigating Disputes: A well-drafted agreement can prevent future disputes by clearly defining terms, responsibilities, and procedures. A lawyer can also help you navigate any existing conflicts by offering expert advice on dispute resolution mechanisms.
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4. Ongoing legal support: Franchise relationships can evolve over time, and your franchise agreement may need adjustments or updates. A commercial lawyer can provide ongoing support to ensure that the terms remain relevant and compliant with any changes in law or business circumstances.

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A franchise agreement is a crucial document for any business entering into a franchise arrangement in Australia. It sets the foundation for a successful and legally compliant business relationship between franchisors and franchisees. Whether you’re franchising your business or becoming a franchisee, it's vital to ensure that your agreement is fair, clear, and legally sound.

If you're considering entering into a franchise agreement or need advice on drafting one, our experienced commercial lawyers can help. We’ll guide you through the legal complexities, ensure compliance with Australian law, and protect your business interests.

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Get in touch today to find out how we can assist with your franchise agreement needs.