Buying a franchise is one of the biggest decisions a person will make, both financially and personally. It is also one of the best paths into business ownership, because you are buying into a proven system with established support. The legal process that sits alongside that decision is there to help you understand exactly what you are buying and what is involved, so you can move forward with peace of mind and confidence. As franchise lawyers, we walk clients through this process every week. This guide is useful reading not only for prospective franchisees, but for franchisors, business development managers and sales teams who want a clear picture of what their franchisees are working through on their legal side. Understanding the process well sets everyone up for a stronger, more confident relationship from day one.
1. Line up your franchise lawyer before the documents arrive
The single best thing a prospective franchisee can do is have a franchise lawyer identified and ready before anything formal lands in their inbox. Franchising is a specialist area of law, governed by its own laws (the Franchising Code of Conduct), and a lawyer who works in this space day in and day out will know exactly what to look for in a disclosure document and a franchise agreement, and how to explain the process to you in plain terms. It is well worth using a lawyer who focuses specifically on franchising, given the depth of practical experience working in this industry requires.
There is a real benefit to engaging early. Once you know who will be reviewing your documents, you can let the franchisor know and have the documents sent directly to your lawyer. This shows the franchisor that you are organised and serious about proceeding properly. In fact, many national and international franchise brands already refer their prospective franchisees to firms like ours, because they know their franchisees will be guided through the process by lawyers who understand franchising well and can help things move smoothly for both sides.
2. Understand what you will receive, and when
The legal process is built around three documents, each with its own timing under the Franchising Code.
- The information statement is a short guide the franchisor must give anyone who shows genuine interest in the franchise. Under the Code, it must be given as soon as practicable, and before any other franchise documents are provided, and it must always be given before any other franchise documents. It gives a helpful overview of what to think about and the questions worth asking at this early stage.
- The disclosure document follows. It gives you detailed, current information about the franchise, including the franchisor's history, contact details for current and former franchisees, your likely costs, and what happens when the agreement ends. Alongside it comes the franchise agreement itself, in the final form it will actually be executed in, together with a copy of the Code. All of which must be given to you at least fourteen days before you enter the franchise agreement or make any non-refundable payment.
3. Make good use of the fourteen day disclosure period
The franchise disclosure period runs for at least fourteen days, and gives you time to properly consider the opportunity before you sign anything or pay any non-refundable money. The clock starts once you receive the finalised documents with your own details inserted, and if the franchisor makes a material change to the agreement during this period, the clock should restart.
This is the time for you and your legal team to review the franchise agreement, work through this and the disclosure document with you, look at any lease requirements, and explain your obligations and rights clearly. It is also a great opportunity to do your own due diligence alongside that legal review, speaking with current franchisees, getting to know the brand and its systems, and confirming with a financial advisor that the numbers work for you. Franchisees who take full advantage of this time tend to go on to build a much stronger working relationship with their franchisor, because they understand the system properly from the outset.
4. Know what you are actually signing
Once the first fourteen days have passed and you are ready to proceed, there is usually more than one document to sign. This commonly includes the franchise agreement itself, often a deed of guarantee and indemnity if you are signing through a company, a lease or licence to occupy if premises are involved, and sometimes a deed of restraint or prior representations deed. Your lawyer should walk you through each one before you sign, so you are fully comfortable with what you are agreeing to.
5. Remember the Cooling Off Period
Signing is followed by a further fourteen day cooling off period. You are entitled to terminate within that window if you need to, and if you do, the franchisor must repay you within fourteen days of being notified, less any reasonable expenses they are entitled to deduct. It is worth confirming in writing exactly what money is refundable in this period, since this depends on what the agreement says. Having this conversation with your lawyer at the time of signing means everyone, franchisor and franchisee alike, has clarity from the very start.
The Takeaway
The legal process around buying a franchise is designed to support a well informed, confident start to the franchise relationship. Engaging a specialist franchise lawyer early, understanding each document, making good use of both fourteen day periods, and knowing exactly what is being signed all lead to the same outcome, a franchisee who goes in with their eyes open and is well placed to succeed. That is good for the franchisee, and it is good for the franchisor too.
👉 Book a quick chat with me, Helen Kay, Founder of Rise Legal Business Lawyers: https://calendly.com/contracts-lawyer/zoom-meeting
Helen Kay, is an accomplished business and franchise lawyer with over two decades of legal expertise. As the Managing Director of Rise Legal, Helen specialises in delivering strategic and practical commercial and franchise legal solutions. Her exciting career has seen her in pivotal roles at prestigious law firms, consistently offering exceptional legal counsel. Her unique combination of hands-on experience and visionary leadership positions her as an invaluable asset in the realm of commercial law and franchise expertise, assisting franchisors and franchisees in safeguarding their business through comprehensive commercial legal support.
Rise Legal Gold Coast | Perth | Sydney
T: 1300 064 707 | E: [email protected] | https://riselegal.com.au
Disclaimer: This article is intended for informational purposes only and should not be considered legal advice. Consult with a qualified commercial lawyer for personalised advice related to your specific circumstances.
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