Franchise Business Lawyers | Greyson Legal
A Guide for prospective Franchisees considering buying a Franchised Business
Franchising is a method of growing a business in which a Franchisor offers its Franchisees:
- rights to use certain intellectual property;
- branding association;
- the right to offer, sell or distribute goods or services under a business system determined by the Franchisor;
- access to systems, processes and procedures;
- management support;
- leadership and guidance;
In return - the Franchisee agrees to pay certain initial and ongoing fees and comply with a range of obligations, typically set out in a Franchise Agreement, Operations Manual and ancillary documents.
The Franchising industry has faced a number of challenges in recent years, exhibited by a mix of:
- rogue Franchisors;
- negative media coverage of certain Franchisors and the franchising industry;
- instability in financial markets leading to negative consumer sentiment;
- constrained consumer spending; and
- competition for the consumer dollar.
Despite this, franchising remains a popular vehicle by which individuals can acquire rights to commence a new Franchised Business or purchase an existing Franchised Business that is already trading.
For a broad overview of the franchising sector, refer to Griffith University's publication - Franchising Australia Report 2014.
Buying a Franchise
Usually when buying a Franchised Business, the prospective Franchisee has two options:
- acquiring what is sometimes called a "greenfields site" direct from the Franchisor; or
- buying an existing Franchised Business from an independent Franchisee - a Franchise re-sale.
In either case it is essential before buying a Franchised Business that the prospective Franchisee undertakes a thorough due diligence investigation of:
- the Franchisor and the Franchise system; and
- for a re-sale, the Seller (outgoing Franchisee) and the Franchised Business itself - such as, past financials, etc.
We can discuss with you a number of pre-purchase matters, for example:
- business structuring advice associated with the Franchised Business acquisition;
- the general application of the Franchising Code of Conduct;
- the franchising business conveyance process in general.
Buying an existing Franchised Business by way of re-sale has the advantage that:
- the initial set-up has already been done;
- there is a trading history;
- there is an existing customer base;
- staff familiar with the business maybe in place.
Greyson Legal's experienced Franchising team can offer advice at every step of the franchising business conveyance process and assist you with all of the key aspects, such as:
- assist you to satisfy the Franchisor's requirements for consent to the Franchised Business purchase, including reviewing and advising you on the conditions set out in the Franchisor's Deed of Consent to Assignment;
- undertake all requisite searches;
- review and advise you on the terms and conditions of the Contract of Business Sale;
- review and advise you in regards to any associated lease, occupancy licence or lease assignment documentation;
- identification of the tangible and intangible assets to be bought or sold;
- assist with any statutory Business licenses;
- deal with employee transfers;
- ensure the release of security interests held by 3rd parties over the Seller's plant and equipment;
- undertake all steps required to settle the transaction;
- carry out all work incidental to the transfer of the Franchised Business.
Franchise Agreement and other Legal Documents
In addition, a thorough review of the Franchise Agreement, Disclosure Document and ancillary franchise documentation should be undertaken before signing the Franchise Agreement or any agreement to enter into a Franchise Agreement.
The Franchise Agreement sets out the key information about the franchise being entered into. The terms and conditions can be very complex and advice from experienced franchise lawyers, such as Greyson Legal, should be obtained.
The Franchise Agreement typically covers the following matters, among others:
- the term and options (or renewal terms);
- what happens at the end of the term;
- what territory to choose and business location;
- whether the Franchise system includes advisory councils;
- the type and extent of Franchisor training;
- what Franchisor support is provided;
- whether the Franchisor utilising a marketing fund;
- whether the Franchised Business is mobile-based (or operates from fixed premises through a lease or occupancy licence);
- the extent to which the Franchisor control pricing of the products and services the Franchisee will sell;
- what fees must be paid;
- how the franchised business must be operated;
- the process to follow if the Franchised Business is sold;
- restraint of trade provisions (to apply both during the term and after expiry or termination);
At Greyson Legal we can provide an extensive review and advice on the:
- terms and conditions of the Franchise Agreement;
- supporting Disclosure Document;
- associated legal paperwork; and
- the Franchising Code of Conduct.
Where possible, we endeavour to offer a fixed price for the review and advice.
Our advice is designed to:
- draw your attention to the key aspects in the Franchise Agreement and associated documents;
- comment on the implications for you;
- highlight changes that we recommend be made to the Franchise Agreement or other legal documents;
- indicate how the Franchise Agreement compares with normal franchising practice;
- point out any areas where the franchise documents provided by the Franchisor do not comply with the Franchising Code of Conduct;
- detail where further clarifications should be sought from the Franchisor;
- highlight any particularly onerous provisions.
Disputes with the Franchisor
Invariably franchise disputes do arise. We can help with negotiations and mediation, which can result in the dispute being resolved, either:
- through the parties continuing with the franchise relationship (on new agreed terms ); or
- surrendering or terminating the Franchise Agreement, allowing each party to go their separate ways without the need for further litigation.
We can undertake an initial review of your situation and the basis of the dispute and advise you of available options.
For more information on how we can assist with a franchise dispute or franchising in general , please contact Greyson Legal | Franchise Lawyers.