Franchise
5. Franchise Agreements
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 27 Jul 2015
- All parties who enter into a franchising relationship will be subject to a franchise agreement which sets out:
- how the business must be operated; and
- the rights and responsibilities of the franchisee and franchisor.
- A franchise agreement is a written, verbal or implied contract through which:
- the franchisor grants the franchisee the right to carry on a business and supply goods or services according to an established system or plan;
- the business is identifiable through a trademark, advertising or commercial symbol which is owned, used, licensed or specified by the franchisor; and
- the franchisee is under an obligation to pay or agree to pay a fee to the franchisor before starting or continuing the business.
- To make sure that your prospective franchise agreement adequately protects your rights as a franchisee and as an individual you should have a lawyer review the terms and negotiate any required changes with the franchisor or their legal representative.
- Some of the common pitfalls contained in franchise agreements can include:
- a requirement that the franchisee cover all legal costs in any proceedings brought against the franchisor;
- vague terms committing the franchisor to assist with set-up of the franchise but not providing sufficient detail;
- requirements to use particular contractors who are unsuited to a new location;
- locking the franchisee into using a set range of products not adaptable to the location or requirements of the new franchise;
- shifting costs to the franchisee in a disproportionate fashion;
- failure to disclose the full range of expected costs; and
- restrictive conditions for renewal of the franchise agreement.
- The law now imposes a duty of good faith on both the franchisee and franchisor. This duty requires that all dealings between these two people are conducted in good faith. This duty goes some way to protecting a franchisee from dishonest conduct on the part of a franchisor.
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