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Five ways to make the best use of your lawyer

Sarah Stowe

A lawyer who is experienced in franchising can help in a number of ways. By asking your lawyer some specific questions, you can ensure that you obtain targeted advice that will assist you as you negotiate each step towards becoming the owner of a franchised business.

1. Ask your lawyer to review all the relevant documents

Not every document you have received from the franchisor needs to be reviewed by your lawyer. As a minimum, your lawyer should advise you in relation to the terms of the franchise agreement and the contents of the disclosure document; whether these documents comply with the Franchising Code of Conduct (Code) and the risks associated with entering into the franchise agreement and associated documents.

Where relevant, you should also seek advice in relation to the sale of business agreement, the lease of the premises and the occupancy licence agreement.

2. Ask your lawyer to explain the most onerous things in the franchise agreement

  • Payments under the franchise agreement

Typically, fees are specified in a schedule at the end of a franchise agreement. However, sometimes some fees are located inconspicuously within the terms of the franchise agreement. Some agreements provide that certain fees may be changed at the franchisor’s discretion.

  • Term and renewal

There may be an option to renew the franchise agreement for a further term, subject to you complying with certain preconditions, including the payment of a renewal fee, the upgrade of premises and entering into the franchisor’s “then current” franchise agreement, which may be different from the franchise agreement you signed.

  • Territory

Some franchise agreements are limited to a particular site, some grant a territory, which may be exclusive or non-exclusive. Some franchise agreements purport to have exclusive territories, but may actually only give exclusive rights to market in an area. In certain circumstances, exclusive territories can become non-exclusive.

  • Minimum performance criteria

Consequences of the failure to meet minimum performance criteria typically include requirements to attend further training. A further failure to meet the criteria may give the franchisor the right to appoint other franchisees in the franchisee’s exclusive territory, the right to force the franchisee to sell the business, or the right to terminate the franchise agreement.

  • Termination

It is imperative that you understand the grounds upon which a franchise agreement can be terminated by a franchisor and ensure they comply with the Code.

Usually, the only way for a franchisee to exit prior to the end of the term is to sell the business or to obtain the agreement of the franchisor.

Not only is the franchisor not obliged to agree to end a franchise agreement early, if the franchise agreement is terminated early by you without the franchisor’s agreement, the franchisor may be entitled to claim damages from you for the revenue it would have otherwise made, such as via royalties, until the end of the term, or at least until the franchisor can find a replacement franchisee.

  • Restraints

Most franchise agreements provide for a period after the end of the franchise agreement during which the franchisee is restrained from being in any way involved in a competing business within a specified area from the territory or premises. Advice should be sought as to the reasonableness of such restraint.

3. Negotiation of amendments to the franchise agreement

An experienced franchising lawyer will highlight clauses that are contrary to the Code, clauses that are both extremely onerous and unusual within the industry and clauses that have relevance to your particular circumstances. Your lawyer can negotiate amendments to such clauses on your behalf or guide you to negotiate yourself.

4. How can I protect myself and my family if things do not turn out as planned?

The shareholders and directors of franchisee companies will undoubtedly be required to give personal guarantees. Giving a personal guarantee potentially places all of your assets at risk.

Advice in relation to asset protection and structuring is critical. Structuring advice should also consider the tax implications of selling the business in the future. Your accountant and your lawyer should liaise with each other to get the best structure possible for you, from the outset.

5. Seek expert advice

Entering into a franchise agreement is not the only time you should consider consulting your lawyer. Lawyers can assist in relation to employment law, privacy law, trade practices compliance and in relation to alleged breaches of or queries about the franchise agreement.

Seeking advice early is the best way to ensure you make an informed decision.

GET THE BEST OUT OF YOUR LAWYER

To get the best out of your lawyer, ensure that they:

  • are experienced in franchising;
  • review all relevant documents;
  • answer your questions;
  • assist you in negotiating amendments;
  • consider asset protection and end of term arrangements; and
  • support you along the way.

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