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
- sought independent professional advice, including about 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, 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.
Franchisees choose to accept the terms of a franchise agreement.
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.
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.