Friday, 23 December 2016

Franchising and End of Term Arrangements


Time limit | End | Termination | Stop watch | Countdown

Under the Code, the Franchisor is required, at least 6 months before the end of the term of the Franchise Agreement, to provide written notice to the existing Franchisee as to whether the Franchisor will renew (or not renew) the Franchise Agreement or enter into a new Franchise Agreement.

If the term is less than 6 months, then the notice period is shortened to only 1 month. The Franchisee also still needs to satisfy any pre-conditions to renewal as set out in the Franchise Agreement.

In addition, the Code prescribes that Franchisors must set out in the Disclosure Document the process to apply at the end of the Franchise Agreement, including:

  • whether the Franchisor will require the Franchisee to enter into a new Franchise Agreement;
  • whether the Franchisee will have any options to renew the Franchise Agreement;
  • if any exit payment is payable to the Franchisee;
  • what is to happen to unsold stock;
  • how marketing material is to be dealt with;
  • what happens to the plant & equipment and any premises fitout at the end of the term;
  • will the Franchisee be entitled to sell the franchised business at the end of the term;
  • whether the Franchisor is granted any right of first refusal to acquire the franchised business, and if so, what is the mechanism to determine the market value ?;
  • what happens to any significant capital expenditure by the Franchisee associated with the franchised business – how will this affect the arrangements to apply at the end of the Franchise Agreement?
It is important to ensure that the Disclosure Document and Franchise Agreement appropriately deal with these issues.

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