If you work with us at Magnolia Legal, you may hear us bandy the term ‘Franchise Suite of Documents’ a lot (or just Franchise Suite for short). Generally, the term refers to the various documents we will create for franchisors to enable them to onboard and contract with a franchisee. If you are looking to franchise in Australia, these documents are not only recommended but, for the most part, a legal requirement. So, what is the Franchise Suite of Documents?
Non-Disclosure Agreement – not a franchise-specific document, but essential nonetheless. A non-disclosure document, or NDA for short, is a document signed by a prospect before any of your franchise documents or confidential information is provided to them. It is basically a contractual promise not to use your valuable information and documentation for any other purpose, or disclose it to any third parties. An NDA can also be referred to/ substituted with a confidentiality agreement.
Information Statement – this is a standard form document to be provided to all prospective franchisees. It is available here. Where Franchisors are required to provide the Information Statement as soon as possible after receipt of an enquiry, it is typically provided together with the Non-Disclosure Agreement.
Franchise Agreement – AKA, the big one. The Franchise Agreement is the contract that governs the franchise relationship, entered between the franchisor and franchisee parties (commonly, the Franchisee, Guarantor/s and any principal or nominated person). It will typically cover, amongst other things, the length of the term and any renewal term, fees and payment obligations, territory exclusions, security offered, reporting requirements, and much much more. In addition, the Franchise Agreement typically annexes advice certificates, which are a further requirement of the Franchising Code.
The Disclosure Document – the Franchising Code mandates what is to be included in the disclosure document, and provides all franchisors are required to provide this to prospective franchisees before they enter into the Franchise Agreement or pay any non-refundable monies. The disclosure document covers such things as the experience of the franchisor and key personnel, the intellectual property relied upon, rebates received by the franchisor, and an itemisation of all reasonably foreseeable fees and expenses. It is a long document, and a lot of its contents are based on what is in the Franchise Agreement (so the Franchise Agreement is typically drafted first). Its purpose, as set out in the Franchising Code itself, is to give a prospective franchisee information from the franchisor to help the franchisee make a reasonably informed decision about the franchise, and give a prospective franchisee current information that is material to the running of the franchised business (see clause 8).
The Key Facts Sheet – this is a newer form, the contents of which are also mandated by the Franchising Code. It is, in essence, a condensed and summarised version of the Disclosure Document.
Licence to Occupy – not all franchisors will have a standard form licence to occupy, only those that take leases in their name (or that of an associated entity). A licence to occupy gives franchisees a right of occupation to premises and obliges them to carry out the obligations of the Lessee as contained in the Lease. Importantly, a Licence to Occupy will usually only be valid to the extent permitted in the original lease.
Deed of Prior Representations – the purpose of these Deeds, which are commonly issued by franchisors but are not a legal requirement, is to record any additional promise, information or assurance made by the franchisor and relied upon by the franchisee in entering into the Franchise Agreement. If there are no such promises, information or assurances recorded in the Deed, albeit it is signed by the franchisee, the Deed provides that no such promises, information, or assurances were made and/ or relied upon. These Deeds were created to safeguard franchisors from claims bought by franchisees to the effect the Franchisor made certain assurances in pre-contract communications (for example, about profitability or the number of referrals to be provided) which assurances, while not a contractual term of the Franchise Agreement itself, were nonetheless relied upon by the franchisee in entering into the Franchise Agreement to their ultimate detriment. The effectiveness of these Deeds is uncertain, with the Courts having ruled they are not definitive evidence that no such promises, information or assurances were provided, though on balance it remains in the franchisor’s interests to have these signed as part of the Franchise Suite.
Conclusion
Depending on the nature of the franchise operations, other documents may be required in addition to the Franchising Suite to, for example, record an agreement concerning PPSA registration, to record a loan between the franchisor and franchisee, or to detail a supply agreement where the franchisor will also act as the supplier.
If you are looking to franchise your business, it is important you familiarise yourself with all the documents contained in the Franchise Suite, their purpose, and how and at what point in time they are to be provided and entered into. If you would like to discuss with us the process and costs of creating your own Franchise Suite, we would love to hear from you.