Costs that a franchisor can't pass on

Payments made by potential franchisees

Franchisors must give potential franchisees key documents. After receiving the documents, there is a mandatory 14 day waiting period before a franchise agreement can be entered into.

If a potential franchisee makes a payment during this waiting period, they can ask for the amount to be repaid. Potential franchisees must give the franchisor written notice asking for the amount to be repaid. Franchisors must repay the amount within 14 days of receiving the request.

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 legal costs.

A franchisor can require the franchisee pay a fixed amount for these costs when:

• the costs are reasonable and genuine, and
• the fixed amount for the costs is specified in the franchise agreement. 

The franchise agreement must also state 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 for preparing, negotiating or executing other documents provided after the agreement is entered into.

Costs of settling a dispute

When settling a dispute, franchisors cannot pass on their legal costs to franchisees.

Franchisors cannot include terms about who pays for the legal costs of settling a dispute in a franchise agreement.

If franchisors and franchisees start an alternate dispute resolution process or a voluntary arbitration process, they usually must share the related costs equally.

Franchisors and franchisees must pay their own costs of attending the dispute resolution process.