Franchise
8. The Role of the Franchisee
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 27 Jul 2015
- Purchasing a franchise can be an exciting time for you as a new business owner. However there are many challenges, risks and new concepts that you will need to deal with. These include:
- how to protect your interests when investigating prospective franchises;
- making the decision to buy;
- setting up the business; and
- commencing operations.
- Franchisees should be aware of the potential for opportunistic conduct in their dealings with franchisors and ensure that they obtain independent legal and financial advice before entering into any binding contracts such as a franchise agreement.
- This opportunistic conduct often comes from an imbalance of power in a franchising relationship. This imbalance can have multiple causes but is often a combination of a franchisor:
- being better resourced;
- understanding the intricacies of the business better than franchisees; and
- having a stronger arm in contract negotiations.
- In order to even out these imbalances from the start and to encourage a strong relationship with your franchisor going forward it is important to get a deep understanding of:
- how the business operates;
- how the terms of the franchise agreement and franchise code will affect your rights; and
- whether your particular franchise options suit your needs personally and financially.
- The 2015 amendments to the franchising code of conduct impose a duty on both franchisors and franchisees to act in good faith in their dealings with each other. This is intended to remove some of the imbalance between franchisor and franchisee.
- If a court is deciding whether you have acted in good faith as a franchisee they will consider whether you acted honestly and not arbitrarily and whether you cooperated to achieve the purposes of the franchise agreement. These considerations are intended as a guide for understanding the obligation of good faith. Other considerations will also be taken into account depending on the circumstances.
- The consequences that can flow from a failure to meet the terms set out in a franchise agreement or the code of conduct can be devastating for new franchisees. If you are forced to start legal proceedings to protect your interests when things go wrong it can be expensive and sometimes fruitless. There is much at stake.
- Ensuring that you properly understand your role as a franchisee and your rights and obligations can help you to minimise future risk to yourself, your business and the business of your franchisor.
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