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What does a Franchising Lawyer do for Franchisors?

Posted on 17 June 2014
When acting for a new franchisor the franchising lawyer will be engaged to give advice about franchising, structuring, business matters, leasing and other legal matters.  The franchising lawyer will also prepare the franchising suite of documents which will be used by the franchisor in granting franchises to franchisees and will govern the relationship moving forward.

The franchising suite of documents prepared will vary from lawyer to lawyer.  Generally the franchisor will be provided with the:

  1. Disclosure Document;
  2. Franchise Agreement;
  3. Prior Representations Deed;
  4. Acknowledgement by Franchisee;
  5. Acknowledgement by Guarantor;
  6. Authority to complete; and
  7. Deed of Confidentiality.

Disclosure Document

The disclosure document must be prepared in accordance with the requirements of the Franchising Code of Conduct.  It must be provided to the franchisee at least 14 days before the franchisee signs the franchise agreement.

When disclosure is given to the franchisee it must be provided with the documents the franchisor requires the franchisee to sign.

Once the franchise agreement has been signed the franchisee has 7 days within which to cancel the franchise agreement.  If the franchisee chooses to cancel the franchise agreement within that 7 day “cooling off period” the franchisor must return the funds paid by the franchisee less any monies the franchisor disclosed would be retained by the franchisor in such a case.

Franchise Agreement

No franchise agreement can be a “one size fits all”.  Franchise businesses vary too greatly for one franchise agreement to fit all kinds of franchised businesses. Franchised businesses can be for retail stores and mobile businesses.  The retail stores can be restaurants, takeaways, in store dining, clothing, pet products and the list is endless.  The mobile franchised businesses can be, for example, car care and maintenance and pet care.  The franchisor’s requirements in relation to the franchised business vary greatly from franchisor to franchisor.  Therefore, the franchise agreement has to be tailor made to the business type and the franchisor requirements.

Prior Representations Deed

This can be a separate deed or included in the Franchise Agreement.

The franchisee is required to complete a questionnaire or simply disclose any representations which it has relied upon in deciding to enter into the franchise agreement.

If the franchisee specifies it has relied upon some representations made by the franchisor or its representatives in deciding to enter into the franchise agreement the franchisor will need to clarify if that representation has been made.

If a representation has been made at the beginning of the franchise process and that representation has been made without basis and is untrue then the franchisee may have a claim against the franchisor for misleading and deceptive conduct.

It is so important for the franchisor to be able to ascertain this before going further with the franchise relationship.

Acknowledgement of Franchisee and Guarantor

This is effectively a requirement under the Franchising Code of Conduct whereby the franchisee and guarantor acknowledge they have received the documents and had a chance to read and understand them.  It will also state the franchisee has been told to receive legal, accounting and business advice and whether or not they have chosen to receive that advice.

Authority to Complete

This allows the franchisor to complete any blanks which have necessarily been left in the franchise or other documents.  For example if the franchise agreement is signed before a start date for the business this date can be completed once the franchised business is ready to commence.

Deed of Confidentiality

This is generally signed when the franchisor and franchisee commence negotiations or prior to giving the franchisee information about the franchise system and business.

The Franchise Procedure

The franchising lawyer will generally be engaged to issue disclosure and the franchise documents to the franchisee on behalf of the franchisor.  This is usually done at the cost of the franchisee.

The procedure which is generally followed is as follows:

  1. The franchisor will provide an instruction sheet to the franchise lawyer;
  2. The franchise lawyer may conduct some searches of the franchisee entity.  If the franchisee entity is a trust the lawyer will want to cite the trust deed;
  3. The franchise lawyer will prepare the franchise documents to be issued to the franchisee together with the disclosure document;
  4. The franchisee will need to sign and return the item 23 certificate to the franchise lawyer.  The item 23 certificate will be signed by the franchisee and the date the franchisee received disclosure;
  5. It may be necessary to undertake some negotiations with the franchisee about the terms of the franchise and other agreements;
  6. If negotiations have been undertaken and the agreements are changed as a result it may be necessary to re-disclose;
  7. After the 14 day disclosure period has lapsed the franchise agreement and other documents can be signed, the franchise lawyer will send the documents to   each of the parties to have them signed and dated;and
  8. The business name registration form (allowing the franchisee to use the business name) will be lodged for registration.
Other steps may be undertaken in the process depending upon the requirements of the specific transaction.
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