Back to Previous

The legal costs you need to know about before you buy a franchise

Sarah Stowe

When buying any business, the costs involved extend beyond just the purchase price for the business. This is equally true for a franchise business.

Amongst the costs you can expect to incur in the purchase are the legal costs of the acquisition.

 As a buyer of a franchise business your lawyer will usually:

  1. Review the proposed contract of sale, explain your rights and obligations under the contract and negotiate any necessary changes especially those that will give you a right to terminate without penalty if, for instance, you are not satisfied with the franchise agreement or the franchisor does not agree to grant you the franchise.
  2. Review the lease, prepare any disclosure statements under the applicable retail leases legislation (if this is a retail lease), review the landlord deed of covenant and prepare the deed of assignment of lease.
  3. Review the franchise agreement, provide you with advice about the franchise agreement and undertake any necessary negotiations on your behalf.
  4. Undertake due diligence enquiries which will incur search fees.
  5. In the relevant States or Territories prepare stamp duty declarations and attend to stamping of the documents.
  6. Attend to any adjustments to the purchase price including for employee entitlements.
  7. Liaise with your bank or financial institution if you have obtained finance.
  8. Attend to settlement.

There is actually quite a lot of work to undertake regardless of the size, price or type of business.

Search fees

Search fees are usually relevant if the business is a food business as this usually requires a Council inspection to ensure the premises are compliant with Council regulations.

There are other factors which will impact upon the search fees such as the entity selling the business. If you are buying a food business we generally suggest you allow about $600 to $700 in search fees.

If it is not a food business then your search fees should be around the $300 mark.

Stamp duty

Stamp duty is not payable on the purchase of a business in all States or Territories. However, if stamp duty is payable, it is calculated on the purchase price so you should ask your lawyer what the cost will be as it is variable.

Legal fees

Again, your legal fees will vary depending upon the type of business and of course are variable between law firms.

For a standard transaction (as an indication only) you should allow between $5000 and $6000 plus GST. However, for a larger more complicated business transaction (for example a restaurant) you could allow somewhere between $10,000 and $15,000 plus GST.

Licenses

You may also need a number of licenses to operate your business and there may be licence fees associated with those. These licenses will vary according to business type and local council.

Some examples of licenses you may need include:

  • Music – in order to play music or the radio in your business you need to obtain a licence to ensure the artists are compensated
  • Business name registration
  • Food hygiene licence – required for the preparation of food in your business
  • Trade waste licence – for food businesses and other businesses with trade waste
  • Signage and advertising – required by some local councils
  • Outside dining permits –dependent upon the council.

When you engage your legal advisor you should ask them not only for a quote as to their costs but also the hidden extras such as stamp duty, search fees and licence costs.