Signing up new franchisees is an exciting part of franchise business growth, but there are several steps franchisors need to take in order to ensure compliance. The Franchising Code was updated in June 2021, and there are some subtle but important changes to the process.
Our team of franchising experts have compiled this guide to help you navigate the process of signing up new franchisees, and to give you a clear understanding of the operational aspects of the franchisee journey.
Step 1: Provision of the Information Statement at the earliest opportunity
As soon as the prospective franchisee expresses interest in the system, you should provide them with an Information Statement. The Information Statement cannot be provided together with the documents described below in Step 2 (it has to be provided earlier).
Step 2: 14-Day Disclosure Period
The franchisee cannot sign the Franchise Agreement, or make a non-refundable payment to the franchisor (or an associate of the franchisor in connection with the franchise) until the 14 days disclosure period expires.
Documents to Provide to start the Disclosure Period
- Franchise Agreement in the form it is to be signed and any Related Agreements* described below
- Disclosure Document
- Key Fact Sheet
- Code of Conduct
- Lease Documents as described below** – if the franchisor will hold the lease and grant the franchisee a right to occupy the premises
- Earnings Information – if the franchisor has provided earnings information prior to providing the above documents, they must be provided again as an attachment to the Disclosure Document
Can the Disclosure Period Be Extended?
The disclosure period will be extended under the following circumstances:
- If the franchisor provides earnings information for the first time after the above documents have been provided, the 14-day disclosure period will begin once the earnings information is provided
- If any changes are made to the Franchise Agreement other than changes made:
- To give effect to a franchisee’s request
- To fill in required particulars
- To reflect changes of address or other circumstances
- For clarification of a minor nature
- To correct errors or references
Note the disclosure period is a minimum timeframe. The documents can be signed by the Franchisee any time after the disclosure period expires provided the documents do not change other than as described above.
Step 3: Franchisee Advice
Before entering into a Franchisee Agreement, the franchisor must have received the following from the prospective franchisee:
- Signed statements that the prospective franchisee has been given advice about the proposed Franchise Agreement (or franchised business) by an independent lawyer, business advisor and accountant
OR
- A signed statement that they have been told to seek advice and have decided not to seek advice
Step 4: Signing the Franchise Agreement
The Franchise Agreement stipulates all rights, responsibilities and expectations for both the franchisor and franchisee. In this step, all parties to the agreement are required to sign the Franchise Agreement. Once it has been signed, the Franchise Agreement manages the relationship between franchisor and franchisee. Any misunderstandings and/or disagreements will be subject to the terms outlined in the agreement.
Step 5: Cooling Off Period
The cooling off period generally expires 14 days after the franchisee signs the Franchise Agreement (note this has been extended from 7 days) – except as described below:
- If the franchisor or an associate of the franchisor leases the premises for the franchised business to the franchisee, or grants them a right to occupy other than by lease (and the lease or occupancy right is not in force at the time of entering into the Franchise Agreement), the cooling off period is extended to 14 days after receiving the lease documents from the franchisor.
- The franchisee may terminate the Franchise Agreement within 14 days after entering into the lease or being granted the occupancy right if, before entering into the lease or being granted the occupancy right, the franchisee did not receive from the franchisor or associate a document setting out terms of the proposed lease or occupancy right that are substantially identical to the actual terms of the lease or occupancy right (excluding changes to the actual terms of the lease or occupancy right that were requested by the franchisee).
* Related Agreements – if the franchisee, its directors, shareholders, owners or partners are required to enter into a lease (other than a lease of a premises) or hire purchase agreement, an intellectual property licence, a security agreement, a confidentiality agreement or an agreement imposing a restraint of trade, these documents must be provided at least 14 days before the franchisee signs the Franchise Agreement if it is available at that time, or, if not, when it becomes available.
**Lease docs - a copy of the lease or, if it's not available, details of the commercial terms of the lease and a copy of the Lessor’s Disclosure Statement or, if that is not available, information about the lease.
For further franchise support in signing up new franchisees, get in touch with our specialised franchise lawyers for a free consultation. For more information on the full lifecycle of the franchisee, you might wish to watch our webinar recording .
