Franchising | Rouse Lawyers

How To Get Out of a Franchise Agreement

November 6, 2019

To get out of a franchise agreement, consider your options carefully

Table of Contents

What Can Franchisees Do to End the Franchise Agreement?
What can Franchisors Do to End a Franchise Agreement?
Terminating a Franchise Agreement
Terminating a Franchise Agreement Under the Terms of the Contract
Other Ways to Terminate a Franchise Agreement
What are the Consequences of Terminating a Franchise Agreement?

A franchise agreement is a legally binding commitment for the term of the franchise with restrictions on exiting early.

Franchisors and franchisees must follow different steps if they believe they have grounds to unilaterally terminate the agreement. This will always depend on the ...

New Tougher Laws in Franchising – Proposed Changes to Franchising Code of Conduct

November 4, 2019

New, stricter regulations for Australian franchises

Earlier this year, following a series of negative comments in Australian media about franchising industry, the Parliamentary Joint Committee on Corporations and Financial Services completed an inquiry into the operation and effectiveness of the Franchising Code of Conduct.

As the result of the inquiry, the Committee released the “Fairness in Franchising” report.

On a broad scale, the Report recommended:

stronger, tougher regulation of the franchising industry
new and higher penalties for breaches of the Code
more responsibilities and greater enforcement power for the ACCC

Not all the recommendations have been welcomed by the industry with noticeable controversies and stir among the insiders.

Regardless of the reactions the Report had generated, we believe significant changes to Australia’s franchise laws are coming.

Let’s look at some of the key recommendations made by the Committee:

Franchise Termination Rights

A franchisee may terminate a franchise agreement without liability to the franchisor where:

a franchisee suffers personal hardship or is over-geared and unable to restructure their finances or sell the business under the assignment provisions of the Code; or
a franchisee’s EBITDA has been negative for three fiscal quarters, the franchisor would be responsible for meeting the terms and conditions of breaking any third-party leases.

Stricter Disclosure Obligations

It is a common practice among many franchisors not to disclose earning information, at least not in writing, to incoming franchisees. Instead, they prefer to use general market data or inform them verbally about the state of the business.

To stop this, the Committee recommended franchisors to provide incoming franchisees with a profit and loss statement, balance sheet, previous two years’ business activity statements and an assessment of labour ...

Franchise Disputes: Breach Notice from Franchisor

September 30, 2019

In a franchise dispute, act early to save your business

A breach notice is a document you should never ignore — fail to act on it and your business may be at risk.

Formal breach notices are generally issued once a franchise dispute escalates and a conciliatory resolution cannot be achieved.

However, this is not always the case because some franchisors may resort to issuing a breach notice straight away.

What is a Breach Notice?

Under the Franchising Code of Conduct (Code), a franchisor is permitted to terminate a franchise agreement if they give you a breach notice and you fail to remedy your breach in accordance with the requirements of the notice. A breach notice is the first step in the termination process and used as a formal warning that your business is non-compliant.

A breach notice must:

specify the provision of the franchise agreement which has been breached;
set out what you are required to do to remedy the breach; and
provide a reasonable time for you to remedy the breach.

If the franchisor wishes to rely on the breach notice to terminate the franchise agreement, the notice must also state that the franchisor proposes to terminate the franchise agreement if the breach is not remedied.

If you fully remedy your breach in accordance with the requirements of the breach notice, then the franchisor cannot rely on that breach to terminate your franchise agreement.

If you fail to comply with all conditions of the breach notice, the franchisor is entitled to terminate your franchise agreement.

Remember that there are certain circumstances under the Code which entitle a franchisor to immediately terminate a franchise agreement without following the breach notice process, such as fraudulent behaviour.

I'm in a Franchise Dispute and Have Received a Breach Notice: What Should I do?

Receiving a breach notice can ...

Get Your Disclosure Documents Ready… or Pay the Price

August 2, 2018

Your Disclosure Documents need to be updated by:
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Forget to update your disclosure documents at your peril.

Franchisors must update their disclosure documents within 4 months of the end of their financial year. That means that most franchisors who operate on a standard financial year ending on 30 June must finalise their update by 31 October.

The annual update is an important part of running a franchise system and is mandatory under the Franchising Code of Conduct. It should never be overlooked lightly. ...

Should Your Franchise Agreement be Negotiable?

August 2, 2018

"Take it or leave it" is the traditional response given to a prospective franchisee asking to negotiate a franchise agreement. Whilst franchisors may sometimes agree to special conditions such as reduced fees or other concessions while the franchisee establishes their customer base, franchisors generally don't negotiate the key provisions of a franchise agreement. ...

What is in a Disclosure Document?

July 19, 2018

If you are considering buying a franchise, the disclosure document is a key part of the process that aims to ensure prospective franchisees can make an informed business decision.

Under the Franchising Code of Conduct, all franchise systems in Australia must maintain a disclosure document, which must be provided to prospective franchisees at least 14 days before entering into a franchise agreement. ...

How Franchise Buyers can Avoid Disputes

April 22, 2018

When buying a business from an existing franchisee, there are some things you can do to minimise the risk of a dispute arising with the seller: ...

How to Change Your Supply Chain – What Franchisors Should Know

April 17, 2018

Franchising is a system of doing business. As a franchisor, you have achieved a proven system for success through your brand and product consistency, and you have opted to duplicate that system by franchising.

An inherent element of franchising is that customers expect to receive identical goods and service-levels across all franchises within a franchise system. For example, an expectation that the same burger at any store in a chain will taste the same. ...

Compliance With New Employment Laws: ‘Reasonable Steps’ Franchisors Can Take

February 5, 2018

The Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (the Act) took effect on 15 September 2017. The Act was triggered in response to the highly publicised 7-Eleven employee underpayment scandal which has engulfed the franchise sector since late 2015, along with several recent systemic underpayment scandals by Domino’s Pizza and Caltex franchisees. ...

What is the Franchising Code of Conduct?

January 29, 2018

This article was previously published on the Inside Franchise Business website.

The Franchising Code of Conduct is a mandatory industry code. It contains a process to determine what constitutes a franchise agreement, and regulates the conduct of franchisors and franchisees towards each other. ...