One of the biggest investments many people will make in their lives is buying a business. There are particular steps to be followed when this is a franchised business. The steps listed in this article are those from a buyer's point of view. They may not be all of the steps, and each Contract and transaction is different. This is meant as a guide only. Step 1: Working out what you can afford There are many costs involved in buying a business, particularly a franchised business. These need to be added to the cost of the business and included in your budget. Some of these costs include: the purchase price of the business and its stock; your legal costs for conducting the business transaction, checking the Franchise Agreement, and checking the Lease if it's a site-based business; accountant's fees for checking the business records and advising on viability; search fees, for checking the business to ensure it is unencumbered and various other searches such as town planning; bank application fees; bank guarantee/security bond for the landlord; stamp/transfer duty payable to the State government; training fees payable to the franchisor; and legal costs payable for the franchisor. Step 2: Finding the business Once you know how much you have to spend then you find the business. This is not an easy task and may take some time. Some people use 'buyers agents' who are business brokers specialising in assisting buyers locate a suitable business. Step 3: Agreeing on the price Sometimes it's difficult to work out what you want to pay for the business if the seller won't give you all of the financial information. Sellers can be reluctant to give out too much information until the Contract is signed (even if you've signed a Confidentiality Agreement).  Buyers are reluctant to sign the Contract without the information. Therefore the Contract is generally subject to the buyer undertaking due diligence and checking the financials. Step 4: Negotiating the Contract Usually if there is a broker/agent, they will prepare the Contract and send it to either the seller's solicitors or the buyer's solicitors. The Contract will then be negotiated and amended until the parties are happy with it. There will be numerous conditions to be included such as: subject to due diligence; subject to searches; subject to the franchisor’s consent, completion of training and satisfactory franchise documents; subject to a satisfactory Lease (if it's a site-based business); transfer of licenses needed to operate the business; arrangements for staff; arrangements for any leased equipment, and who pays out that Lease; transfer of any rented equipment such as drink fridges or ice cream freezers. There are many things to be considered before the Contract is signed and it is strongly recommended that legal advice be obtained before signing the Contract. Step 5: Signing the Contract Before you sign the Contract, you must decide on your purchasing structure, such as sole-trader, partnership, company and/or trust. Your accountant and solicitor will help with this. Because the buyer is making an [...]

Franchise Agreements generally contain a restraint of trade provision restricting a franchisee from operating a competing business after the Franchise Agreement ends. This will be for a certain time period within a certain geographical area. A franchisor, Back In Motion Physiotherapy Pty Ltd (Back In Motion), recently provided the ACCC with a court enforceable undertaking to remove certain terms from its Franchise Agreement which they admitted may be unfair. By giving the undertaking, this meant that the ACCC would not take further court action against Back In Motion. The restraint within Back In Motion's Franchise Agreement prevented a franchisee's involvement in a competing business located within a 10km radius of any Back In Motion Physiotherapy franchise for 12 months after the Franchise Agreement ended. This effectively prevented ex-franchisees from operating in many areas of Australia given the number of existing franchised businesses throughout the country. Also contained in the Franchise Agreement was a 'buy out fee' equal to 4 times the franchisee's annual royalty fees payable if the franchisee wanted to be released from the restraint. Back In Motion admitted that these could be potential unfair contract terms within the meaning of the Australian Consumer Law. This is a provision that: causes significant imbalance between the parties' rights and obligations; isn't reasonably necessary to protect the legitimate commercial interests of the stronger party advantaged by the provision; and would cause detriment to the weaker party if enacted. Back In Motion have undertaken: not to enforce these select terms in the future; and to remove the terms from their Franchise Agreements moving forward. This undertaking suggests that the ACCC are continuing to: actively monitor the compliance of franchisors with industry laws; review Franchise Agreements; and pursue franchisors who contain potentially unfair terms in their Franchise Agreements. Franchisors should therefore regularly undertake the appropriate reviews and seek legal advice about whether their standard-form Franchise Agreements may contain unfair contract terms.   At Salerno Law we are experienced in acting for both franchisors and franchisees in all aspects of franchising law. Get in contact if you need our assistance.   By Luke McKavanagh Luke has specialised in franchising law since his admission into practice and has acted for a diverse range of franchisors and franchisees of a variety of franchise systems. He is also an active member of the Queensland Law Society Franchising Law Committee where he keeps on the forefront of the latest developments in laws affecting franchising, and contributes towards submissions to government on topical issues facing the franchising industry.     DISCLAIMER:  This article is only meant to give you general information and should not be relied on as legal advice. Speak to one of our lawyers for more information.

Disputes can often arise between a franchisor and franchisee during the course of their business relationship. Franchisors have a legal entitlement to formally place a franchisee on notice if a franchisee breaches a provision of the Franchise Agreement. Formal breach notices are generally issued once a dispute escalates and a conciliatory resolution cannot be achieved. However, this is not always the case and some franchisors may resort to issuing a breach notice straight away. Breach notices must be taken seriously by franchisees because failure to act can put their business at risk. When issuing breach notices, franchisors must ensure that they are at all times acting strictly in accordance with the law. What is a breach notice? Under the Franchising Code of Conduct (Code), a franchisor can terminate a Franchise Agreement if they provide a breach notice to a franchisee and the franchisee fails to remedy that breach in accordance with the requirements within (and timeframe of) the notice. Issuing a breach notice is essentially Step 1 in the termination process, and used as a formal warning to a franchisee that their business and/or conduct is non-compliant. To be valid under the Code, a breach notice must: be in writing; specify the exact breach of the Franchise Agreement; set out what the franchisee must do to remedy the breach; and provide a reasonable time for the franchisee to remedy the breach (which doesn't have to be longer than 30 days). If the franchisor wants to rely on the breach notice to terminate the Franchise Agreement, the notice must also state that the franchisor proposes to terminate the Franchise Agreement if the breach is not remedied accordingly. If the franchisee remedies the breach fully in accordance with the requirements of the breach notice and by the due date, then the franchisor cannot rely on that breach to terminate the Franchise Agreement. Otherwise, if the franchisee fails to comply with all conditions of the breach notice, the franchisor can terminate the Franchise Agreement. A breach notice will often also require a franchisee to pay the franchisor's legal costs associated with the breach if that's allowed by the terms of the Franchise Agreement. There are certain circumstances under the Code where a franchisor can immediately terminate a Franchise Agreement without following the breach notice process. This includes the franchisee becoming bankrupt/insolvent, acting fraudulently in connection with the franchised business, endangering public health and safety, or simply abandoning the franchise. How to respond to a breach notice?  As a starting point, a franchisee should read the breach notice carefully together with their Franchise Agreement, and diarise the deadline that has been given to remedy the breach. The breach notice must clearly specify what the franchisee has allegedly done wrong and how that constitutes a breach of the Franchise Agreement. A franchisee should ensure they fully understand exactly what the franchisor requires them to do. If the notice requires the franchisee to do multiple things to remedy the breach, but the franchisee only does 1 [...]