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It is quite common for Franchise Agreements to contain clauses which have a significant effect on the way in which the sale contract should be drafted.  If  a contract for the sale of a Franchised business is signed without first reading the Franchise Agreement and checking any requirements, then it may be difficult to unravel the resulting mess. There is a lengthy list of things that need to be checked.  If  steps are not taken to ensure compliance, then it is likely that any sale contract will be in conflict with the Franchise Agreement.  This problem can be difficult to resolve because the sale contract may oblige the seller to do one thing and the Franchise Agreement may prohibit the doing of that same thing.

Going to court is expensive.  It is so expensive that many commercially minded people would rather pay someone money that is not owed, or walk away from money that is owing, just to avoid legal costs. While some business people take this practical approach, others want to stand up for the principle of the matter.  Having principles can however be very expensive. It is true that because legal costs are high, even a win may feel like a loss.  Legal costs are sometime higher than the value of the dispute. Lawyers have a saying that "costs follow the event".  In other words, normally the winner of legal proceedings will receive an order that their costs should be paid, by the losing party.  We mention some exceptions below. Here we should pause to think about what this means:

Dealing firstly with whether it is possible to franchise your business.

If your business:

  • was only established in recent years,
  • has not been tested over time in a range of economic conditions,
  • is not a respected and recognizable brand in your local area,
  • does not utilize  operational documentation relating to the processes employed in that business,
  • is not strongly supported by employed managers who are fans of the business,
  • does not utilize a patent or other assets that other potential business owners would value and
  • does not produce a healthy profit after factoring in the franchisors anticipated administration and promotions costs

then you are probably not ready to franchise.

When a retailer purchases from a wholesaler or a manufacturer the retailer must ensure that they know the limitations of the goods purchased.  If the goods are faulty then the retailer may be liable to any subsequent buyer.

Whenever a retailer sells goods to a consumer there is a sale agreement and conditions are implied into that agreement.  Consumers may make use of these conditions to successfully claim against a retailer.

The stakes can be high!  If a product is not fit for a purpose it may cause damage and necessitate rectification works the cost of which may go well beyond the cost of the goods supplied.

The Australian Personal Property Security Register was due to commence in May, then October this year and now, will commence in early 2012. It will affect most businesses and it is worthwhile looking at the impact of these new laws as soon as possible. Financiers, Lessors and Suppliers will need to make sure that they do not lose their rights over assets which they have secured. Buyers will need to make sure that no-one else has an interest in the item they are buying.

The new register will replace most traditional securities including bills of sale and company charges.

So what should you do to ensure that you are not affected?

The cost of preparing legal documentation to turn a business into a franchised system is between $8000 and $20,000 plus GST .  This cost may be recovered by the sale of  franchises. Once the template documents are prepared the franchisee should pay the franchisor's costs to prepare and issue the documents, as well as the cost of negotiations. We set up franchise systems for clients throughout Australia. Please contact us for an instant quote.  The task of preparing this documentation is a routine legal engagement for us however it is a lengthy process where each step in the process must be respected. We can usually provide draft franchise documentation within 2 weeks of receiving instructions.

The cost and time involved is determined by the complexity of  the system, and the extent to which the client has resolved issues relating to the workings of the system.  For example if the franchise system relates to a home or vehicle based system, then the cost is generally not much more than $8000 plus GST. When it is necessary to incorporate procedures relating to retail shop leasing then this would normally add another level of  processes and cause cost increases.