Franchise Agreement

What is franchising?

Franchising is not a business itself, but a way of doing business. A franchise agreement records the respective rights and responsibilities of the franchisor and the franchisee (and sometimes others) in the delivery of a relatively homogenous customer experience across a network of businesses which operate under the same brand.

The parties’ rights and responsibilities can differ substantially between franchise systems, so this precedent should be used as a starting point, and a general guide only.

The detailed system compliance, and day to day business compliance issues, are often addressed by the operations manual, as this facilitates changes that are necessary as a result of new technology, new products or services or changed consumer preferences. This agreement makes reference to, and incorporates, that manual.

How are franchises regulated by law?

Within this precedent, there are several references to clauses from the Franchising Code of Conduct set out in Schedule 1 of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Cth) (Code). The Code requires certain provisions to be included in franchise agreements and prohibits the inclusion of certain other provisions. Code references in this precedent should be checked, and clauses of this agreement drafted having regard to the relevant provisions of the Code.

Variation

A draft franchise agreement provided by a franchisor to a franchisee during the disclosure period before entering into the franchise must be in the form in which it is to be executed. Changes can be made to the franchise agreement within the 14-day disclosure period only if changes relate to:

• giving effect to a franchisee’s request;
• filling in required particulars;
• reflecting changes of address or other circumstances;
• making minor clarifications; or
• correcting errors or references: clause 9(3) of the Code.

Motor vehicle dealership agreements

This precedent is not intended to be used as a motor vehicle dealership agreement (including a new vehicle dealership agreement). Such an agreement is taken to be a “franchise agreement” within the meaning of the Code. However, the Code imposes different requirements on motor vehicle dealership agreements compared with other franchise agreements in relation to certain matters.

What does the Franchise Agreement cover?

• the fees associated with the franchise;
• the application of the system manual;
• restrictions on the territory of the business;
• obligations on both parties to run a quality business;
• vehicles and equipment;
• marketing;
• confidential information;
• insurance;
• use of business name; and
• breach and dispute resolution.