The initial stages of setting up a business as a franchise can be extremely tedious and expensive. It is often very tempting to search the internet for franchise documentation of brands operating in similar fields to your business and then try to put together a cut-and-paste version.
This approach to drafting the franchise documents is fraught with danger.
Franchising in Australia is heavily regulated, with high financial penalties imposed for breaches of the Franchising Code of Conduct.
The Code includes, among other things, the requirements to:
- produce and correctly complete the disclosure document in the form prescribed by the Code; and
- draft a compliant franchise agreement, which:
- covers certain areas described by the Code, such as cooling off, termination, etc.; and
- does not includeany clauses which are prohibited by the Code, for example, general waiver of liability.
The Code mandates for ancillary documentation to be drafted and provided to potential franchisees such as advice certificates to encourage them to seek advice from an accountant, a solicitor and a business adviser.
Regardless of the Code, a franchise agreement, which is the main vehicle governing the franchise relationship, must be drafted in a way which protects you, your intellectual property and all your assets, as well as containing adequate disclaimers and permitted limitation of liability clauses.
It should be noted that if your documentation is drafted by a lawyer, you reduce the risk of claims of misleading or deceptive conduct. This is because your lawyer would advise you about all your information and what parts of it should be excluded from documentation.
You should also remember that ignorance of the law is not a defence and any flaws in the drafting of your documents will be your direct responsibility.
Lastly, in most cases, when you get approached by a potential franchisee to buy one of your franchises, they will take your documentation to a (franchise) lawyer and if the documentation is not drafted correctly, you will:
- receive numerous requests for changes to your documents;
- develop a reputation of being non-compliant;
- likely be reported to ACCC for non-compliance; and
- face lack of confidence in your business in the marketplace, potentially resulting in failure of the franchise system.
It is highly recommended that you stay away from do-it-yourself franchise documents and trust in a franchise lawyer who can guide you through the maze of the legalities and alleviate stress of being non-compliant or facing law suits in the future.
