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, it is still important to carefully consider whether or not to sign, to seek independent professional advice, and complete recommended steps before you sign.

If you are a franchisor, you should ensure your franchise agreement and any representations do not 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, it is important to negotiate changes before you sign up. Once an agreement is signed, you have to follow the terms of the agreement.

But remember, some terms in a franchise agreement are common across most franchise systems. For example, terms about supply arrangements. Supply arrangements in franchise agreements can prevent franchisees from shopping around for cheaper or different quality supplies. It is not necessarily against the law for franchisors to have these arrangements in place and franchisors may not want to remove these from a franchise agreement.

If the franchisor is not willing to negotiate terms, it may be better to simply walk away. This is the easiest time to withdraw from a bad agreement – 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 could include money needed to buy equipment, or to refurbish the premises. Franchisees should write down the details of this conversation, especially if the franchisor mentions anything that is not already in the disclosure document.

New franchisees have a cooling off period

A franchisee who has just entered into a franchise agreement can still exit the 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, leaving the franchise system is likely to be much more difficult and expensive.

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 and any changes to it are essential information for potential and existing franchisees.

Documents a franchisor must give a franchisee before starting

Franchisors must give certain documents and information to potential franchisees before they enter 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 and there are some situations where a franchisee can terminate the 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. However, 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 sets out the rules of the franchising relationship that the franchisor and franchisee have agreed to. A franchise agreement is a legally binding contract.

The disclosure document

In franchising, all franchisors must create and maintain a disclosure document, and provide it 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 their disclosure document.