Legal Advice and Franchising – YES it is important!
Yes a lawyer telling people to ensure they get formal legal advice before entering into any franchise or doing any deal may sound self serving, but over the years of my practice I have seen many occasions where if a person had just sought formal legal advice or required the other party to get formal legal advice before entering into the relevant deal, they may have saved a fortune in money and time, avoided emotional distress and/or destruction of relationships.
Getting legal advice may not stop all potential problems happening, but may reduce the type, number and/or their severity. It may also ensure that any matters necessary for the achievement of the transaction’s goals are covered off.
I suggest this is especially true where you have ensured that the legal advice being obtained is from someone with a good level of experience in the area you are dealing with. (You should always ask your lawyer what is there exact experience). Someone experienced in the relevant area should be more likely to predict and prevent potential issues, as well as make you aware of relevant matters you may not otherwise have considered.
The Franchising Code of Conduct, (the main law affecting franchising within Australia), itself arguably recognises the importance of parties getting legal advice, via it having made it a requirement that franchisors must recommend their franchisees obtain legal, accounting and/or business advice before entering into, renewing or extending the scope of any franchise agreement. Franchisees need to sign off that they have had this recommendation and received advice or decided not to receive the relevant advice.
Given the above I have found many franchisors not only recommend, but make it a requirement that the franchisee must at the very least first get formal legal advice and have their lawyer sign off on this.
By ensuring parties have had legal advice from someone experienced in franchising should hopefully result with parties having a better understanding and expectation on their obligations and rights, establishing a better relationship foundation. Additionally, if things do go wrong, for Franchisors having their franchisees and their lawyers sign off on legal advice as having been received prior to entering into the relevant arrangement, may assist to show that the Franchisor did all they could to ensure the relevant Franchisee made an informed decision and seek to reduce any potential claims.
For those either entering into a franchise, buying an existing franchise business or the actual franchise network, as mentioned earlier, if you do not fully understand your obligations and ensure all important matters have been covered off in any agreement, then you may have increased your liabilities and/or not included what is needed to assist you achieve the goals of entering into the deal in the first place.
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