Why It’s Not as Simple as Putting Pen to Paper
Signing a franchise agreement might seem like a straightforward step, but it’s often far more complex than it first appears. With multiple requirements under the Franchising Code of Conduct and strict rules around document execution, franchisees and franchisors alike should tread carefully. This process is best navigated with the assistance of an experienced franchising lawyer to ensure compliance and to safeguard everyone’s interests.
Here are just a few of the key considerations that make this more than just a matter of signing on the dotted line.
(a) Expiration of the Consideration Period
The Franchising Code of Conduct sets out specific requirements that must be met before a franchise agreement can be signed. One of the most important is the 14-day consideration period. Under the Code, franchisees must receive the franchise agreement, disclosure document, and a copy of the Code at least 14 days before signing.
What many don’t realise is that this period can restart in certain circumstances—for example, if a materially different version of the agreement is later provided. Failing to observe the full 14-day period could result in non-compliance with the Code and may have legal consequences.
(b) Prerequisites to Signing
Before entering into the agreement, the franchisee is required to complete and provide several key documents. These include:
- A statement confirming they have read and understood the disclosure materials, had the opportunity to seek advice, and made their own decision to proceed.
- Independent legal and financial advice certificates signed by a lawyer and an accountant (or a written statement from the franchisee electing not to seek such advice).
Because of these requirements, it’s often the case that franchisees will sign first, and the franchisor will follow once all conditions precedent have been met.
(c) Signing the Disclosure Document Receipt
Another critical step is the signing of the disclosure document receipt. This is used to confirm that the franchisee received the required disclosure materials within the timeframe dictated by the Code.
It’s also important to make sure that any annexures required under the Code (such as site or territory information) are included with the disclosure document or provided concurrently. Missing annexures can lead to questions about whether the disclosure was compliant and complete.
(d) Executing Documents Generally
How a franchise agreement is executed matters—a lot. The process is a legal minefield, and the proper execution method will depend on several factors:
- Whether the document is a deed or a simple agreement
- Whether it is being signed using wet ink or electronically
- The structure of the signing party (e.g. company, individual, partnership, or trustee)
- Whether the parties are complying with applicable legislation such as the Corporations Act 2001 (Cth)
For instance, a company signing under section 127 of the Corporations Act will require two directors or one director and a secretary (or the sole director if that is the case) to sign. Trusts and partnerships, however, require bespoke execution clauses that clearly identify who is signing and in what capacity.
Additionally, deeds often require witnessing, and its good practice to have any individual signatory witnessed. These seemingly small differences can render an agreement unenforceable if not properly managed.
Final Thoughts
It’s easy to underestimate the significance of properly executing a franchise agreement. However, with the complexity of the Code and the legal requirements around document signing, getting it wrong can have serious consequences for both parties.
From ensuring the 14-day consideration period has lapsed, to gathering all necessary certificates and making sure the execution clauses align with the party’s legal structure—every detail matters. That’s why it’s strongly recommended that both franchisors and franchisees engage an experienced franchising lawyer to oversee the process and ensure everything is above board.
Franchise agreements aren’t just paperwork; they’re the legal foundation of a long-term business relationship. Taking the time to get the signing process right is one of the most important steps you can take toward a smooth and compliant franchise journey.