Everything you need to know about franchising

Grace GaoFranchising

If you want to start a business, joining a franchise may be a good choice for you. There are some unique benefits becoming a franchisee. A well-managed franchising business often are endowed with good reputation and an established stable customer base. This can save you money and time because goodwill and a stable customer base can take years to build.

What you need to know before you join as a franchisee?

There are risks associated with joining a franchisee you should be aware of before you take such an important step. For instance, you may not be aware of the financial status of the franchise you will take. What if it is a profit-losing franchise?

Also, many franchisors will not be the leasors. Therefore, as a franchisee, you will need to negotiate with the landlord and sign a lease so that you have access to the premise before you start your franchisee business. Negotiation of lease terms can be complicated. In addition, franchisors are required to provide you key documents which have hundreds of pages which you need to understand.

One of the key documents the franchisor must provide franchisees with is a disclosure document. It must be provided at least 14 days before you enter into a franchisee agreement or make a non-refundable payment. The disclosure document will contain a lot of important information including operating costs and fees you will have to pay, contact details of current and former franchisees and any litigation the franchisor is involved in etc.

It is therefore strongly advised that before you join as a franchisee, you should seek professional legal advice. Di Lizio & Associate has a commercial team which has experience dealing with franchising matters. We can assist you in negotiating with the landlord, help you understand important documents provided by franchisor, provide you legal advice on how to negotiate a favourable result and avoid any potential problem. We consider your commercial needs and assist you avoid any legal problem.

Which law will protect you if you become a franchisee?

The Franchising Code of Conduct (“The Code”) provides franchisees with certain rights. The Code is mandatory across Australia and regulates the conduct of franchising participants towards one another. The Code applies to all franchising agreements, including any renewals, transfers or variations.

What if franchisor makes a promise that it does not fulfil?

An important requirement under the Code for the franchisors is that the franchisors must act in good faith. This is stipulated in clause 6.1 of the Code. The Franchising Code provides that “each party to a franchise agreement must act towards each other with good faith, within the meaning of the unwritten law”. The “unwritten law” means the law developed in the Australian Courts through case law or common law. The High Court of Australia in Commonwealth Bank of Australia v Barker [2014] HCA 32 has held that good faith involves “fairness in dealings between contracting parties”. That means the franchising parties must act honestly and with a fidelity to the bargain.

Also, if there is any oral communication, before the franchisee contract is signed, during which a representative of the franchisor makes a promise but fails to fulfil later, this can be amount to a misrepresentation. Under section 18 of the Australian Consumer Act, you maybe entitlted to a number of remedies.

There are risks, benefits, solutions of potential problems to be considered and solved before you join as a franchisee. There are also obligations you must fulfil when you become a franchisee. There are legal rights you have to protect yourself once you join as a franchisee. Di Lizio & Associates can guide you through in each step of the franchise process. If there are any questions about franchising, please feel free to contact us at any time. Di Lizio & Associates has lawyers who speak fluent English, Indonesian, Mandarin, Cantonese. We are here to help.