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Guide for Successful Franchise Agreements

A franchise agreement is a legally binding contract that outlines the rights and obligations of both the franchisor and the franchisee. However, navigating the complexities of franchise law can be challenging, which is where a lawyer can be invaluable.

In this article, we will explore how a lawyer can assist in a franchise agreement. Further, we will examine relevant decisions from court cases. These cases demonstrate the importance of adhering to agreements and obtaining permission prior to making significant changes.

How can a lawyer help in a Franchise Agreement?

Customisation to specific needs:

Lawyers work closely with the franchisor and franchisee to tailor the agreement to their specific needs. They customise elements such as territorial rights and renewal options. This ensures the agreement meets the needs and goals of both parties.

Follow the rules:

Franchise law is complex and can change frequently. Lawyers who specialise in franchise law stay on top of these changes. They can ensure the agreements comply with the current regulations. This helps prevent legal issues and ensures fairness for both the franchisor and the franchisee.

Settlement of disagreements:

In the event of disputes, lawyers can resolve conflicts through negotiation, mediation or, if necessary, litigation. They work to find amicable solutions while protecting their clients’ interests and preserving the integrity of the franchise relationship.

Avoiding surprises:

Lawyers carefully review every aspect of the agreement to identify and resolve any potential problems or ambiguities. They can help avoid misunderstandings and disputes that may arise in the future.

Understand money matters:

Financial aspects of franchise agreements, such as fees and royalties, can be complex. Lawyers provide guidance and clarity on these financial matters. This allows both parties to clearly understand their financial obligations and rights under the agreement.

Teach and support:

Lawyers educate both franchisors and franchisees about their rights, obligations and contractual terms. They help clients with contracts, giving them the knowledge to make good choices and building a strong business partnership.

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Cases held by Australian Courts

The Civic Video case was about a franchisee trying to sell its businesses without asking the franchisor’s permission, which led to stopping of operations. 

The Court said this was breaking the franchise agreements. The Appeal Court ruled that the franchisor is entitled to compensation. This compensation is for the money they would have earned. This is if the franchisee had continued with the agreement. 

It’s crucial for franchisors and franchisees to obey the agreement’s rules and seek approval before making significant changes.

Key Learning Points from the Civic Video Case:

  • Enforcement of contractual obligations: Franchisors are entitled to enforce the contractual obligations of franchisees, including the payment of fees due under the franchise agreement.
  • Damages for Unlawful Termination: Franchisors may seek damages equal to the amount they would have received had the franchisee performed the agreement for the full term.
  • Compliance is crucial: Failure to comply with the franchise agreement terms can have serious consequences. This emphasises the importance of obtaining prior consent for any proposed business transfer.

 

In simple terms, the Civic Video case teaches us that both franchisors and franchisees must stick to the terms of the agreement and get permission before making any big changes to the business.

In Guirguis and Michel’s Patisserie, a former franchisee claimed that the franchisor had misled them. The franchisee tried to terminate the agreement early by claiming that they had abandoned it, but the franchisor terminated it for the same reason. The court ruled in favour of the franchisor, and pointed out the importance of a document called the “Deed of Prior Representations and Questionnaire. This document was crucial in deciding the franchisee’s claims.

The case shows why franchisees must trust specific statements to support their complaints. It also highlights the importance of effective risk management for franchisors.

Key Learning Points from the Guirguis and Michel’s Patisserie case:

  • Misrepresentation claims: To succeed in a misrepresentation claim, a franchisee must prove that it relied on certain representations made at the time the franchise agreement was entered into.
  • Document Importance: Thorough risk management practises, including the use of documents like the Deed of Prior Representations and Questionnaire, can help in the defence of future claims.
  • Accuracy in Promises: Franchisors should pay attention to the accuracy of promises and representations made to franchisees.
  • Warranties and Disclaimers: Including appropriate warranties and disclaimers in franchise documentation can minimise risk and replace any reliance on representations.
  • Encourage independent advice: Franchisors should actively encourage franchisees to seek independent advice and conduct extensive research before entering into a franchise agreement.

 

The Guirguis and Michel’s Patisserie case demonstrates that franchisees must prove they were deceived to make a successful claim. Franchisors should utilise documents to safeguard themselves and ensure franchisees possess all essential information. Franchisors should use documents to protect themselves and ensure franchisees have all the necessary information.

About the Author

Farrah Motley
Director of Prosper Law. Farrah founded Prosper online law firm in 2021. She wanted to create a better way of doing legal work and a better experience for customers of legal services.

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