If you own a franchise, read on to find out your 13 legal rights that have and need to know right now.
And you are just thinking about purchasing a franchise but have not yet purchased, you may wish to read our 6 best in-depth legal tips to help prepare you for owning your first franchise.
Also, if you after a specific answer about your rights, you can jump ahead below.
It is a good idea to read the franchising code if you need more detail.
Also, while we focus on your franchising code rights in this article, you also have responsibilities under the same code.
So what exactly is the franchising code?
The franchising code applies to all the parties to a franchise agreement and its legally binding.
Now, your rights under the code are in addition to your rights under Australian consumer and competition laws.
Also, the code is mandatory and breaches attract civil penalties.
And no, the franchisor cannot opt out of the code.
First, you will get an information statement from the franchisor when you enter into an agreement for the first time. Here's what it looks like.
And, the risks and rewards of franchising are also included in the information statement.
The franchisor must also give you a disclosure document as a prospective franchisee.
Your disclosure document needs to be in a certain format.
So here is what the disclosure should look like - Australian Consumer and competition disclosure document template.
And a director, officer or agent of the franchisor must sign it.
Also, the franchisor must update the disclosure document within 4 months after the end of each financial year.
However, the franchisor does not have to give you a disclosure document in these instances:
The franchisor must give you these documents:
And, importantly, the franchisor cannot enter, renew or extend a franchise agreement with you if you have not given them a written statement that you have received and understand the disclosure document and franchising code.
In addition to the agreements above, if you are also leasing from the franchisor, they must give you a copy of the signed lease within a month.
Also, here are other agreements you can get copies of:
In addition to the agreements above, if your franchise agreement states that you must pay money to a marketing or another fund, you have the right to receive an annual financial statement.
And that statement should detail the receipts and expenses for the last financial year.
Also, here are some of your other statement rights:
The franchisor must tell you about any material facts that are not in your disclosure document, within 14 days of learning about them.
And if you are wondering what is a material fact, here are some examples:
Also, the franchisor must give you written notice if they plan to extend your agreement or enter into a new one with you.
So how much notice should you receive?
And if you have either of these in your agreement, they will have no effect.
Any mediation or court action must occur in the state or territory where your franchise is based.
So if you have a clause that says otherwise, it won't have any effect.
Also, your mediation costs are split with the franchisor and if your agreement requires you to pay, that clause will have no effect.
What's the purpose of a restraint? A restraint protects the interests of the franchisor.
How? By stopping you from running a competing business for a certain time during and after your agreement ends.
However, the good news is you won't be bound by a restraint in your franchise agreement if you have given notice seeking to extend your agreement on similar terms to the current agreement, and these conditions are met:
The franchisor must respond to you in writing about whether they agree to a franchise transfer.
But, if the franchisor does not consent, they need to give you their reasons.
Now, if the franchisor does consent, they need to tell you whether any conditions need to be met.
Importantly, a franchisor must not unreasonably withhold their consent.
And a franchisor may only be able to reasonably withhold consent in these instances:
Also, consent can be reasonably withheld if you have not:
Now, you will have consent if the franchisor does not advise you in writing, that they do not consent to the transfer of the agreement within 42 days of the latter of:
You may end your franchise agreement within 7 days after the earlier of:
Now, if you end the agreement during the cooling off period, the franchisor must, within 14 days, give you back all the money you paid the franchisor.
However, the franchisor may however deduct their reasonable expenses set out in the agreement.
If there is a termination because of your breach and the franchisor wants to end the agreement, they must give you reasonable notice in writing.
And the franchisor needs to tell you about what you need to do to fix the breach and allow you a reasonable time to do this.
Also, you are entitled to reasonable notice if the franchisor wants to terminate and there is no breach.
A franchisor must not make you spend significant capital expenditure for a franchise business.
Capital nature expenses include ones that:
You are entitled to have funds that you have paid into the marketing fees and advertising front used only to pay for expenses that:
When your agreement ends, you can request in writing that your details are not disclosed. In this case, the franchisor must not disclose your details to a prospective franchisee.
In addition to your privacy rights, a franchisor must not prevent yours or a prospective franchisee's freedom to form an association, or their ability to associate with other franchisees or prospective franchisees for a lawful purpose.
In addition to your associations rights, you are entitled to dispute management processes per the procedure in the franchising code.
If you wish to raise a dispute, you can send a written notice to the franchisor with the:
And if your dispute is not resolved within 3 weeks, either party may refer it to a mediator.
Further, both parties must share mediation costs, unless they agree otherwise.
Finally, you have rights and if you are unsure about anything, get legal advice quickly. In particular, if you have been issued with a dispute notice.
Do you need help from an Australian business lawyer for startups? Contact us today for help on firstname.lastname@example.org or 1300 478 278 Australia wide or on +61 2 9151 7233 from overseas. We are always glad to help.
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