Franchise agreement: service business

This franchise agreement is for a business that predominantly sells a service to the end customer: whether to B2B services such as accountancy, law or provision of water coolers; or to B2C, such as window cleaning, home maintenance, hairdressing, health and fitness sessions or sports classes. The franchisee may also sell goods, such as branded consumables that complement the service.

Suitable for use in: ACT, NSW, NT, QLD, SA, TAS, VIC and WA
Price A$129.00
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About this franchise agreement

This is a franchise agreement for a business that predominantly sells services to other businesses or to consumers. The company may also sell goods, such as branded consumables. The different types of business for which this agreement is suitable are vast and could range from branded dance classes to cleaning services, to professional service provision such as accountancy or law.

The agreement covers an enormous number of issues important to franchising and we believe it is comprehensive enough to be used by the largest franchise chains. For smaller businesses, it should be an ideal basis from which to craft an agreement that not only protects the rights of the franchisor, but also impresses prospective franchisees.

We would expect this agreement to be used by a solicitor or other franchise advisor. However, because the key to drawing a good franchise agreement relies on knowing the nuts and bolts of how the business works (rather than knowing complicated law), a business owner could also use it with ease. Use of plain English makes every sentence clear.

Should you be buying an agreement from an on-line retailer?

The advice from the largest association of franchisors in the Commonwealth of Australia, the Franchise Council of Australia (the FCA), is that you shouldn’t use an advisor who isn’t a paid subscriber to their association. That advice extends to franchise agreements bought from online retailers. This isn’t impartial advice. The trade association is comprised of experienced and knowledgeable people, but it is a private company, commercially operated to promote and to protect the financial interests of its subscribers.

There is no additional qualification required to practice franchise law, just as there isn’t to being able to draw a lease. Commercial experience is the important quality to seek.

When it comes to selecting a franchise agreement from an online retailer, we suggest that you look at templates from several different suppliers in order to evaluate which one is most comprehensive and suits you best. Templates are not expensive compared to the cost of a solicitor's time, and the benefit to your business of getting your franchise agreement right is enormous. Bear in mind that a short agreement,regardless of where it is bought, is unlikely to protect your business sufficiently,not because the law relating to franchising is overwhelmingly complex, but rather because the practical considerations of how the franchise will work require more than a few pages to record them.

The Franchise Council of Australia promotes ethical franchising. We agree with this, not as a matter of philosophy but because a successful franchisor is one who helps his franchisees to create profitable businesses while he expands his own. Your franchise agreement has to form the basis of a sound and profitable deal for both sides.

The law in this franchise agreement

Franchising is regulated by specific legislation. The Franchising Code of Conduct regulates parties to “franchise agreements”. The Franchising Code of Conduct is a mandatory industry code of conduct that has the force of law under the Competition and Consumer Act 2010.

The Franchising Code was the first national standard regulations of its kind in the world when introduced in July 1998.

The purpose of the Franchising Code of Conduct is to regulate the conduct of participants in the franchise sector toward one another.

It covers three key areas:

  1. Pro-forma disclosure for all franchisors
  2. Requirements of franchise agreements
  3. Dispute resolution procedures for franchisees and franchisors

Requirement of disclosure document

According to mandatory Franchise Code of Conduct the franchisor must give franchisee copies of the Code of Conduct, Disclosure Document, Franchise Agreement (in its final format), and copies of other agreements (i.e. leases) in either electronic or hard-copy form at least 14 days before franchisee enter into agreement or pay non refundable money.

A franchisee may terminate an agreement within seven days of entering into the agreement or making any payment under the agreement, whichever occurs earlier. Where this happens, the franchisor must refund all payments made by the franchisee within 14 days, minus any reasonable expenses provided for in the agreement. There is no cooling-off period for a renewal, transfer or extension of an existing franchise agreement.

Businesses for which this franchise agreement would be suitable

This franchise agreement has been drawn for:

  • Businesses that predominantly sell services, and possibly also goods
  • Businesses that sell to B2B, B2C or both

Examples of businesses that could use this agreement include those:

  • Where the advantage to the franchisee is from use of specialised systems (such as software or methods of working), the franchised brand, and/or centralised service provision (such as the use of a website to collect customer orders or take payment).
  • Such a model would be common in many service companies, from accountants to plumbers to dog walking services.
  • Where the franchisor has developed intellectual property that forms a key part of the service offering.
  • A good example of this type of business is a dance fitness company: the franchisor provides the franchisee with regularly updated music compilations and dance routines that the franchisee teaches to individuals who subscribe to a series of classes.
  • Where the franchisor has developed equipment or machinery that is used to provide a differentiated service.
  • For example, a franchisor may develop an advanced glass cleaning machine that is used by franchisees to provide a window cleaning service.

The agreement is comprehensive enough to be used by a business of any size, but we assume that the business will be small or medium sized, perhaps with several established branches already. The franchisor may be new to franchising, or may be looking to extend into the Commonwealth of Australia.

The franchise territory can be of any size, from part of a town to a continent. Generally, it is more advantageous to the franchisor to keep the area small and grant licenses to operate in additional areas to the same franchisee later. This agreement can be used to grant territory outside the Commonwealth of Australia. The agreement does not cover ownership and lease of property (premises) by the franchisor. The agreement assumes that the franchisee will own or let the premises outside of this agreement either from the franchisor or someone else if required.

Agreement features and benefits

We have given the buyer of this document a large degree of control over what the franchisor will give and what the franchisee will do in return.

We have included the usual provisions such as:

  • Use of trademarks and intellectual property
  • Provision of marketing and marketing materials
  • Development of public relations and promotional campaigns
  • Cooling off period
  • Data protection law compliance
  • Training and support
  • Sourcing materials

Protection of his investment is likely to be very important to a franchisee. The agreement covers this in detail, from franchise renewal rights, transfer with pre-emption to intellectual property that the franchisee might create. These should provide fair terms that incentivise the franchisee and allow him to benefit from having built up his franchise without the franchisor relinquishing too many rights.

Agreement contents

This is one of the longest Net Lawman documents with 31 pages (excluding guidance).

The contents include the following paragraphs:

  • Warranties that the franchisee is able to take on the franchise
  • Grant of franchise
  • Obligations of the franchisor to the franchisee: both initially and on-going
  • Fees and payment terms
  • Rights to renewal
  • Data Protection law compliance
  • Cooling off period
  • Franchisee’s undertakings
  • Transfer terms: including pre-emption rights for the franchisor to acquire the business
  • Terms relating to the corporate structure of the franchisee
  • Termination: rights to terminate the agreement and process for termination
  • Insurance
  • Risk and retention of title
  • Use of subcontractors
  • Intellectual property rights: extensive provision for the protection of the franchisor's property
  • Confidentiality
  • Limitation of liability
  • Publicity
  • Indemnity
  • Dispute resolution
  • Other legal paragraphs to protect your interests
Draftsman

This document was written by a solicitor for Net Lawman. It complies with current Australian law.

AU-MADfrn01 - Franchise agreement: service business (Suitable for use in: ACT, NSW, NT, QLD, SA, TAS, VIC and WA)

 
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