Beginning a franchise agreement

Beginning a franchise agreement is a big step. If the franchise does not go well, people can lose a lot of money.

Steps to take

If you’re signing a franchise agreement for the first time, you should have already: 

If you are an existing franchisee who is considering signing a new franchise agreement, you still should:

If you are a franchisor, make sure your franchise agreement and any representation you make don't breach the laws about franchising.

Accepting the terms of a franchise agreement

Franchisees choose to accept the terms of a franchise agreement.

Negotiate terms

If there are terms in the franchise agreement that don’t work for you, negotiate changes before you sign up. Once an agreement is signed, you have to follow its terms.

Some terms in a franchise agreement, such as terms about supply arrangements, are common across most franchise systems. Supply arrangements in a franchise agreement can prevent the franchisee from shopping around for cheaper or different quality supplies. It isn't necessarily against the law for franchisors to have these arrangements in place. Franchisors may not want to remove these arrangements from their franchise agreement.

If the franchisor is not willing to negotiate terms, it may be better to walk away. The easiest time to withdraw from a bad agreement is before you sign or pay any non-refundable money to the franchisor.

Get it in writing

Franchisees should make sure that everything the franchisor tells them is documented in writing. Otherwise, it may be difficult to later prove what the franchisor said.

For example, franchisors have to discuss capital expenditure in the disclosure document with anyone who is about to sign an agreement. This can include money to buy equipment or refurbish the premises. Franchisees should write down the details of this conversation, especially if the franchisor mentions anything that is not in the disclosure document.

New franchisees have a cooling off period

A franchisee can exit the franchise agreement during their cooling off period and can usually get back at least some of the money they paid to the franchisor. If the sale of a franchise involves a transfer of a franchise agreement, the buyer can usually get at least some of their money back if they decide to cool off.

After the cooling off period expires, it is usually much more difficult and expensive to leave the franchise system.

A franchisee who is leasing or occupying premises from the franchisor is also allowed to end their agreement shortly after receiving lease information.

Franchisees who are extending or renewing an existing franchise agreement with the franchisor do not have a cooling off period.

More information

Disclosure of a franchisor's financial circumstances

The franchisor’s financial position is essential information for potential and existing franchisees. This includes any changes to the financial position.

Documents a franchisor must give a franchisee before starting

Franchisors must give potential franchisees certain documents and information before they enter into a franchise agreement. 

Changing your mind after signing a franchise agreement

Sometimes, soon after buying a franchise, a franchisee might change their mind. This is known as cooling off.

Terminating a franchise agreement after receiving lease information

Leases and occupancy licences can be a big expense. In some situations, a franchisee can end a franchise agreement after receiving lease information.

Costs that a franchisor can't pass on

Franchisors will ask franchisees to pay for lots of different costs. Under the code, there are some costs that franchisors can’t ask franchisees to pay for and some circumstances where costs can't be passed on.

Franchising supply arrangements and restrictions

Supply arrangements are when a franchisor controls who a franchisee can get their supplies from, what they can sell, or who they can sell to.

The information statement for prospective franchisees

The information statement is a 4-page guide that a franchisor must provide to anyone interested in buying a franchise.

The franchise agreement

The franchise agreement is a legally binding contract. It sets out the rules of the franchising relationship that have been agreed to. 

The disclosure document

All franchisors must create and maintain a disclosure document that must be given to potential and current franchisees.

The key facts sheet

Reading the key facts sheet alongside the disclosure document can help potential franchisees to better understand information in the disclosure document.