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Some franchisors ask for a deposit before they will provide potential franchisees with certain documents.
Before a franchisor can ask for any non-refundable payment, they must ensure that the potential franchisee has:
- their pre-entry documents for at least 14 days
- read and understood the disclosure document and Franchising Code of Conduct.
Legal costs of franchising documents
Franchisors can only pass on the legal costs that arise from preparing, negotiating and executing the franchise agreement.
A franchisor must meet certain conditions when they want to pass on these kinds of costs.
A franchisor can require the franchisee pay a fixed amount for particular legal costs if they are specified in the franchise agreement and the agreement states that the amount:
- is for the franchisor’s legal costs of preparing, negotiating or executing the agreement
doesn't include any amount for the franchisor’s cost of legal services provided after the agreement is entered into. This relates to preparing, negotiating or executing other documents.
Costs of settling a dispute
The franchise agreement can’t say that the franchisee must pay for the franchisor’s costs related to settling a dispute.
If franchisors and franchisees start an alternate dispute resolution process or a voluntary arbitration process under the franchising code, they usually have to share the costs equally.
Franchisors and franchisees generally have to pay for their own costs of attending the dispute.