Franchise Agreements: Franchisee and Franchisor Responsibilities

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Introduction – General Information

Franchisees and franchisors should always seek legal advice before entering into franchise agreements.  The question arises, however, as to whether a lawyer should act for both or only one party.

Your own lawyer should never represent both the franchisor and the franchisee or master franchisee.  Your lawyer should not act in a manner that might give a franchisee the impression the franchisor’s lawyer is representing them.

Franchises are not the only possible business method for the parties. A successful franchise has advantages for both franchisor and franchisee.

Generally, a franchise will involve the marketing of the franchisor’s intellectual property. This intellectual property must be protected. The franchisor should register all elements of the brand. The relevant domain name should also be protected.

What will happen if franchisees or their employees or contractors develop the intellectual property of the franchisor?

Franchisors should have procedures which enable them to prove that they are the owner of all intellectual property and that no person, particularly a third party or external contractor, is able to claim any interest or entitlement including any moral rights.

The Trade Practices Act 1974 (Cth.) has direct relevance to franchise agreements.

Most franchise agreements attempt to impose some form of contractual restriction on the trading freedom of the franchisee.

The Trade Practices Act imposes severe penalties on franchise agreements that have not been properly considered by legal advisors. Lawyers need to be aware of the structure of Section 47 (6) or use the notification processes under the Trade Practices Act to gain dispensation for conduct.  Section 45 and Section 4D of the Trade Practices Act are relevant in circumstances where market sharing arrangements are established by competitors. Lawyers will need to be able to find ways of achieving the desired commercial objectives without breaching the Trade Practices Act.

Representing a franchisee when concluding a franchise agreement

The first question which should be addressed by any lawyer representing a franchisee is to assess whether the client is suited to the franchise arrangement.

The client should look for characteristics which could mean they are not suited to being a franchisee.

A potential franchisee must receive information and documents from the franchisor before the franchise agreement is signed.

The Franchising Code of Conduct requires the information to be supplied by the franchisor to a prospective franchisee.  Under the Code, the franchisor is required to give clients the following legal documents:

  1. Disclosure Statement
  2. Franchise Agreement
  3. A copy of the Franchising Code of Conduct

The solicitor representing a prospective franchisee should ensure that searches are completed before the franchise agreement is signed.

A disclosure document provided by a franchisor under the Code of Conduct must contain relevant information about which you should see your lawyer.

Essentially, the disclosure document provides a snapshot of the franchise business.

This means that the solicitor representing the franchisee should check a number of factors when reviewing the disclosure document before the franchise agreement is signed.

The Code of Conduct also sets out important information about the franchise relationship.

Hopefully, the franchise will operate successfully.   If disputes arise, however, how are they resolved?

The Code requires the franchise agreement to set out the procedure for handling complaints.  The parties must follow this dispute resolution procedure.  The person making the complaint must give details to the other party and let them know what they want done about it.

Whatever your circumstances always contact LAC Lawyers for competent legal advice and representation.

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