Are you buying or setting up a new franchise in Perth or Western Australia?

Call Irving Law, Business Lawyers, on (08) 6460-5460

If you are buying a new business, including a franchise, it is important for you to understand your risks and obligations. Only by knowing these things can you take adequate steps to set up a compliance system to protect you from defaulting under your franchise agreement

James Irving, lawyer, says:

“Franchise agreements vary a lot, but. compared to other types of agreements they are almost always big and complex. Some are missing features we might think should be standard, such as a capacity for the franchisee to exit the agreement. Sometimes the disclosure document, which is easier to read, doesn’t match the clauses of the franchise agreement. Buying a franchise is a big investment, and a problem or dispute with your franchisor could turn out to be very costly and time-consuming. Having your document reviewed professionally by a lawyer is a smart thing to do.”

Hot issues: the things that can cause problems

Many things can potentially go wrong with a franchise business. If you are concerned about any of the following   issues, it is probably a good idea for you to ask a lawyer to review the franchise agreement before you sign it:

  • what limitations apply when the business is sold?
  • what happens when the agreement comes to an end, for example, do you have to sell your equipment to the franchisor, and for what price?
  • is the franchisee is allowed to terminate the franchise agreement, or transfer it to another person?
  • can the franchise agreement put you in conflict with your landlord?
  • can the franchisor can compete directly with the franchisee?
  • how is the franchise territory defined, and does this result in artificial competition with other franchisees?
  • is the range and size of fees being paid to the franchisor normal?
  • what are your marketing obligations,?
  • what happens if the manager of the business dies or becomes incapacitated?
  • is the business is subject to performance targets, and what happens if there is a downturn in business?
  • how do the guarantee clauses work?

The wrong time to find out that your franchise agreement is unfair, or too restrictive, is when a problem arises, maybe many years after you have signed it. Don’t be caught by surprise. Find out exactly what is in the agreement, and whether that is normal or if it poses unacceptable risks, before you sign up.

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