The franchisor compliance manual

Franchise agreement

The franchise agreement is the contract between you and a franchisee. It sets out each party’s rights and responsibilities in relation to the franchised business, as well as each other.

The franchise agreement you provide during the pre-entry disclosure period must be in the form in which it is to be executed. This means that you cannot simply give a draft copy of the agreement.

However, you may make changes to the franchise agreement within the 14 day pre-entry disclosure period if the change is to:

  • give effect to a franchisee’s request
  • fill in required particulars
  • reflect changes of address or other circumstances
  • make a minor clarification
  • correct errors or references.

Example: A franchisor provides a prospective franchisee with its pre-disclosure documents, including the franchise agreement, as required by the Code. During negotiations, the prospective franchisee requests that the term of the agreement be changed from five years to seven. The prospective franchisee also advises that his registered office will be his accountant’s office not his principal place of business.

The franchisor agrees to the prospective franchisee’s requests and amends the agreement. The parties enter into the agreement 14 days after the documents were initially provided. In these circumstances, the franchisor has complied with the 14 day period, even though changes were made to the agreement, as the changes were made to give effect to the franchisee’s request and to reflect a change of address.

Example: While amending the franchise agreement to reflect the above changes, the franchisor also changes the agreement to require the prospective franchisee to comply with new sales targets and reporting obligations.

In these circumstances, the franchisor must not enter into the agreement or accept a non-refundable payment until 14 days have passed after the prospective franchisee was provided with the updated agreement. This is because the changes to the agreement were not for one of the reasons permitted by the Code.

Other documents you must provide

If you will require a franchisee to enter into any of the following types of agreements as a condition of their franchise agreement, you must provide copies of these agreements to the franchisee:

  • a lease or hire purchase agreement for goods
  • an agreement under which the franchisee gains ownership of, or is authorised to use, any intellectual property
  • a security agreement, including a guarantee, mortgage, security deposit, indemnity, loan agreement or obligation to provide a bank guarantee to a third party
  • a confidentiality agreement
  • an agreement not to carry on business within an area or for a time after the franchise agreement is terminated.

You must give these documents to the franchisee at least 14 days before the franchise agreement is signed, or as soon as they become available.