Are you buying or selling a franchise?
Although the elements of setting a up a franchise business seem relatively easy, there is in fact a substantial amount of legal work which needs to be done from both the franchisee and the franchisor perspective. If you are a franchisee looking into the elements of buying a franchised business, you have a series of rights which are protected by the Franchising Code of Australia. This code is part of the Trade Practices Act 1974 (Cth) in Australia and is enforceable as a law in Australian courts. There are a number of key elements of the code which can be summarised as follows:
In terms of disclosure under the code, franchisors and master franchisees (or sub-franchisors as they are sometimes known) must give a franchisee:
- a copy of the code
- a disclosure document in the required form
- a franchise agreement in the form it is to be executed
- at least 14 days before the franchisee enters into, renews or extends a franchise agreement or pays a non-refundable deposit in relation to a franchise agreement.
The code also requires that a franchisor:
- informs the franchisee of any materially relevant facts about the franchise (for example, certain court proceedings) within 14 days after the franchisor becomes aware of them
- gives a copy of a current disclosure document to the franchisee within 14 days after a written request to the franchisor, as long as only one request has been made within the last 12 months, not including a request made under a right of renewal.
There are important elements of the franchior’s obligations to franchisees and if they are not complied with, there are serious penalties under the legislation including fines and injunctions. The penalties for contraventions of the code are enforced by the Australian Competition and Consumer Comission (ACCC) and can be serious enough to lead to the dismantling of the entire franchise business if the breaches of the franchising code are serious enough. If you are thinking of buying into a franchise and you need independent legal advice, please do not hesitate to contact us about a matter like this and we will be more than happy to assist you.
