Breach of Franchise Agreement:

When a franchise is purchased, the new franchisee will be required to sign a Franchise Agreement. A Franchise Agreement regulates the relationship between the franchisee and the franchisor. It sets out the obligations and responsibilities of each party throughout the term of the Agreement. Key provisions often prescribed under the Franchise Agreement include:

• Details of the parties and the location of the franchise;
• The term of the Franchise Agreement;
• When and how the Franchise Agreement can be terminated and varied;
• The financial contributions required of the franchisee upon acquisition of the franchise and during the term of the Franchise Agreement, for example, contributions towards the franchise’s marketing fund and outgoings, and when these payments are due;
• Whether payments to the franchisor are recalculated each year of the Franchise Agreement, and how these calculations are made;
• The franchisor’s responsibility to negotiate the lease of the premises from which the franchise will operate and what will occur if the lease expires and cannot be renewed;
• Whether the franchisee is required to renovate the premises during the term of the Franchise Agreement;
• Who is responsible for the supply of equipment and materials, including who has the authority to enter into hire agreements;
• How the franchise will operate on a day to day basis and the level of intervention and/or support provided by the franchisor;
• Who determines the products and price points for goods and services offered by the franchise;
• Consequences if there is a breach of the provisions of the Franchise Agreement;
• The dispute resolution process to be implemented if a dispute arises; and
• Whether the parties need to disclose a change of circumstances, for example if the franchisor becomes a party to legal proceedings or if the franchisee becomes bankrupt. 

The majority of disputes under a Franchise Agreement arise from a breach of contractual obligations. In such circumstances, the dispute resolution process set out in the Franchise Agreement may be implemented. However, legal action may still be available depending on the nature of the dispute and the dealings between the parties.

One mistake often made by a party in dispute is to take steps towards terminating the Franchise Agreement without following the correct procedures and allowing the required timeframes to elapse. It is important to obtain legal advice prior to taking any such steps, because unlawful termination may lead to a claim being brought against the initiating party.

If you are a franchisee or franchisor and you are in dispute about the Franchise Agreement, we recommend that you seek advice as to your rights and entitlements and on the best way to proceed having regard to your future intentions for the franchise.

If you wish to speak to one of our Franchising Advice & Disputes Lawyers, please contact our firm by telephone on (02) 9233 4048 or send an email to info@navado.com.au.

This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.