Beginning a franchise agreement is a big step. If the franchise does not go well, people can lose a lot of money.
If you’re signing a franchise agreement for the first time, you should have already:
- carefully considered whether or not to buy a franchise
- read all the documents from the franchisor
- had independent professional advice on the agreement and any disclosure from the franchisor about their financial circumstances
- completed other recommended steps.
If you are an existing franchisee who is considering signing a new franchise agreement, you still should:
- consider whether to sign a new agreement
- get independent professional advice
- complete the recommended steps before you sign.
If you are a franchisor, make sure your franchise agreement and any representation you make don't breach the laws about franchising.
Franchisees choose to accept the terms of a franchise agreement.
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.
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.