What is a Franchise Agreement?

A franchise agreement (Franchise Agreement) is defined in clause 5(1) of the Franchising Code of Conduct (Code), located in Schedule 1 of the Competition and Consumer (Industry Codes–Franchising) Regulation 2014 – as:

  • a written, oral or implied agreement;
  • in which a person (Franchisor) grants to another person (Franchisee) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the Franchisor; and
  • under which the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol that is owned, used, licensed or specified by the Franchisor or an associate of the franchisor; and
  • under which, before starting or continuing the business, the Franchisee must pay or agree to pay to the Franchisor or their associate an amount; for example, an initial capital investment fee or a payment for goods or services.

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Does a franchise system need to be registered?

People looking to establish a franchise often ask us whether the franchise system needs to be “registered” in Australia. The term franchise system as defined by section 4 of Schedule 1 – Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Code) “includes a business system in which a franchisor grants a franchise to a franchisee”. [Read more…]

Franchisors’ end of term arrangements – valuation of goodwill versus risk of competition

Section 23 of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth)(Code) provides that a restraint of trade clause in a Franchise Agreement (Agreement) is of no effect, if the Franchisee gives notice of its desire to extend the Agreement and the Franchisor elects not to do so.

A restraint of trade clause can be used in a variety of commercial contracts, however it is generally thought of being more readily enforceable where goodwill is involved.  The Explanatory Statement to Select Legislative Instrument No. 168, 2014 issued by the Minister for Small Business in relation to the Code states clearly that the intention of Clause 23 is to ‘provide relief in special circumstances where a franchisee, through no fault of its own, has not had its franchise extended by a franchisor’. [Read more…]

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