Preparing a franchise grant agreement
Franchise grant agreements are heavily regulated under the Franchising Code of Conduct (Competition and Consumer Act 2010, Schedule 1). Getting the agreement wrong exposes the franchisor to penalties and gives the franchisee grounds to terminate. This workflow ensures each mandatory element is addressed.
This is an 8-step workflow for preparing a franchise grant agreement in Australia. It covers compliance with the Franchising Code of Conduct, disclosure obligations, and the key commercial terms that must be addressed before the franchise relationship begins.
Before you start
- Details of the franchise system and operating model
- Current disclosure document (or instructions to prepare one)
- Franchise territory maps and exclusivity arrangements
- Fee schedule including upfront franchise fee, royalties, and marketing fund contributions
The workflow
Confirm disclosure obligations are met
Verify the franchisor has provided the franchisee with a compliant disclosure document at least 14 days before execution. Check the document includes all items required under clause 8 of the Franchising Code.
Define the grant and territory
Draft the grant clause specifying the rights being granted, the territory, and whether the territory is exclusive. Address any reserved rights for online sales or alternative channels.
Set out the fee structure
Detail the franchise fee, ongoing royalties, marketing fund contributions, and any other recurring fees. Ensure the fee disclosure matches the disclosure document exactly.
Draft operational obligations
Set out the franchisee's obligations regarding operations manuals, training, quality standards, supply chain requirements, and record-keeping. Include a clause requiring compliance with the franchisor's system.
Address IP licensing and restraints
Draft the trade mark licence, confidentiality obligations, and post-term restraint of trade provisions. Ensure restraints are reasonable in scope and duration to be enforceable.
Include mandatory Code provisions
Insert the cooling-off period (7 days from execution or payment), the obligation to act in good faith, the dispute resolution process required by the Code, and termination notice requirements.
Review transfer and renewal terms
Draft provisions for assignment by the franchisee, conditions for renewal at end of term, and the franchisor's first right of refusal. Check these align with Code requirements on transfer and end of term.
Finalise and arrange execution
Conduct a final compliance review against the Code checklist. Arrange for the franchisee to sign the agreement acknowledgment and confirm the cooling-off period. File the executed agreement and disclosure records.
What you will have at the end
A compliant franchise grant agreement ready for execution, with all Franchising Code obligations addressed, disclosure properly documented, and a clear record of the pre-contractual process.
Common issues
- Failing to provide the disclosure document the full 14 days before execution
- Fee disclosures in the agreement not matching the disclosure document
- Unreasonable restraint of trade clauses that are unenforceable
- Missing the mandatory cooling-off period provisions
- Not including the Code-required dispute resolution process
Run this workflow on a real matter
Quillio reviews franchise agreements against the Franchising Code and flags missing mandatory provisions in seconds. See /practice-areas/commercial-lawyers or start a free trial.
This workflow covers standard franchise grant agreements under the Franchising Code of Conduct. Motor vehicle dealerships and fuel franchise arrangements have additional requirements.
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