Franchising Agreements

Are you considering buying a franchise, selling a franchise or launching a franchise program for your existing business?

Franchisees

Buying a franchise can be a great way to get into business for yourself. It eliminates much of the uncertainty and risk of a traditional start-up. However, it’s important to remember that once you sign the franchise agreement, there’s no going back. We recommend taking the time to have it thoroughly reviewed by an experienced franchise law specialist. As a potential franchisee, we will help you review this agreement thoroughly, making sure you understand everything before signing on the dotted line.

Franchisors

The choice to franchise can lead to high financial returns with relatively little risk. You may be able to take your business national or even global with investment from the franchisees - the sky's the limit. The first step towards franchising success is always careful planning and preparation. We can offer you practical legal advice on everything from business structure, supplier contracts, disclosures and property agreements. Perhaps most importantly, we can advise you on the content of your franchise agreement.

We’re here to help

The Commercial Team at Davenports Law has extensive experience in all aspects of franchise law. We know that the foundation of any successful franchise is the relationship between the franchisor and the franchisee. The terms of that relationship are established in the franchise agreement, a 40-80 page contract covering a wide range of legal topics.

The Franchise Agreement

Franchise agreements will vary depending on the type of business. However, they should all contain terms outlining:

• A Franchise Manual
  Providing all the tools and information necessary for a turn-key operation. It needs to fully prepare the franchisee to operate from day one.
  
  
• The Term Length
  Including automatic or discretionary rights of renewal and the ability to renegotiate terms.
  
  
• Territory
  Outlining exclusive territory rights, obligations and ability to dilute territory if obligations are not met.
  
  
• A Premises Lease Agreement
  A potentially sticky area that should be approached with clarity in mind. We always advise matching the length of the lease or sub-lease to the length of the franchise agreement.
  
  
• Products and Supplies
  Relevant issues include: obligation to order supplies through the franchisor, time for delivery, notice required when placing orders, insurance and how long the franchisee has to inspect and return any products that are defective.
  
  
• Minimum Performance Criteria
  Make sure the expectations are grounded in reality. Are the criteria achievable? How is the minimum performance criteria set and how often is the criteria reviewed? Who has input into the review process?
  
  
• Selling or Transferring the Franchise
  What happens if the franchisee chooses to sell the business before the full term of the franchise agreement? Does the franchisor have the right of first refusal? Are there clear terms in regards to time frame, property and fees?
  
  
• Termination of the Agreement
  Any reasons for terminating the franchise agreement need to be considered carefully and communicated clearly.
  
  
• Dispute Resolution
  There is no legislative procedure to follow for resolving disputes between franchisors and franchisees in New Zealand. We recommend that franchisors voluntarily join the Franchise Association of New Zealand and follow the Code of Ethics and Code of Practice espoused by FANZ as best practice. If not, it is vital to lay out an alternative dispute resolution procedure in the agreement.
  
  
• Non-Competition
  These clauses need to be carefully crafted and reviewed to ensure reasonable restraints are imposed at the end of the franchise.
  
  

Contact us for help with franchising.

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