When do I need to find a franchise lawyer?
I am ready to buy a franchise: when should I seek legal advice and what type of advice should I seek?
Potential franchisees often wonder at which stage of their search for a perfect franchise business they should engage a lawyer. The simple answer is at the very beginning. Once you choose a franchise system to join, you should contact a lawyer immediately.
A franchise lawyer can assist you with the following types of advice:
Prior to buying any type of business, you should consider how your purchase will be structured. The options include a company, a trust, a combination of the two or trading as a sole trader. These options must be discussed with both a solicitor, in relation to asset protection, and an accountant, in relation to tax consequences.
2. Due diligence and review of franchise documentation
A franchise lawyer can assist in undertaking normal business and franchise related due diligence. This includes undertaking all relevant searches to find out all the information needed about the franchisor and, if the business is currently operated by another franchisee within the system who is selling, information about them. It includes working out whether the assets of the business are in any way encumbered.
A franchise lawyer is able to review the franchise documents, including the franchise agreement, disclosure document and a licence agreement (and / or a lease) and to provide relevant advice, including:
- what terms should and should not be included in the franchise documentation
- whether any information provided in the disclosure document is incorrect or inconsistent with other documentation
- what fees are payable
- the general terms of the franchise agreement and if any parts of it are inconsistent with the Franchising Code of Conduct
- if there is any room for negotiations, for example negotiating with the landlord in relation to annual increases in rent and the amount of the security deposit payable
- any restraint of trade imposed in the franchise agreement
- intellectual property and systems, their ownership and how they can be used in your future business
3. Review and advice in relation to any contract
If the franchise you are buying is currently operated by an existing franchisee, there will be a contract of sale, like in any business sale, which needs to be reviewed, negotiated and finalised. A franchise lawyer can see your matter through all the way to settlement, dealing with lawyers acting for the vendor, the franchisor and the landlord, if applicable.
For what it is worth, find a lawyer at the start of your search, even if just for a preliminary conversation so that when you need to get any advice along the way, you know who to call.