If you are buying a franchise, one of the most important documents you will receive is the franchise agreement. Try not to be overwhelmed but the volume of the document, it is pivotal that as a franchise buyer you understand the terms, clauses and criteria outlined throughout.
While you should seek professional advice, here are a few things to look out for.
- Check the length of the franchise term and if you have the option to renew.
- Next, establish whether you are being granted an exclusive territory or not. If so, check how the territory is defined. Is there a map attached?
- Check for circumstances in which the territory can be reduced by the franchisor.
Agreements can set out both parties’ obligations in getting the business started. These clauses relate to fit out training and the purchase of tools and equipment.
Next, consider the performance criteria.
- Is the criteria achievable?
- What happens if you fail to meet it?
Towards the end of the agreement is where you’ll typically find franchise fees. They can include:
- Initial franchise fees
- Training fees
- Ongoing royalties.
While only a precaution, you should also consider the termination circumstances. Under the Code, franchise agreements can only be terminated in certain instances:
Agreements will outline the restraints that apply post-termination or sale. These restraints prevent you from operating a competing business.
Also, check your agreement matches that code’s dispute resolution standards. Having an understanding of these elements of the agreement is key. Couple this with legal advice and you will be informed to make a purchase.
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