Franchising your business is an exciting step to take, however, it comes with added responsibility. It is important to consider these obligations before entering into a Franchise Agreement so that you not only uphold your legal obligations but also ensure the smooth running of your franchise. A franchisor’s responsibilities are set out in the Franchising Code of Conduct and the Franchise Agreement.
Responsibilities under the Franchising Code
The franchising code covers a range of rights and responsibilities owed to franchisors and franchisees.
Significant responsibilities under the Code include:
- Disclosure obligations: Franchisors must fulfil their disclosure obligations whenever a person proposes becoming a franchisee or an existing franchisee is seeking to renew or extend their agreement. Franchising documents must be updated yearly.
- The Code does not limit the Franchisors common law duty to act in good faith.
- The Code also provides procedural requirements for franchisors to follow during a dispute and when seeking to terminate an agreement.
The responsibilities under the Code must be clearly understood, a more detailed outline can be read here.
Common responsibilities under the Franchise Agreement
Each Franchise Agreement is unique to the business and the franchisee. However, here is a summary of common responsibilities in a Franchise Agreement which should hopefully assist you to understand the role of the franchisor:
Providing franchisees with adequate geographical space
It is generally the franchisor’s responsibility to ensure that franchisees are provided with an adequate amount of territory to conduct a successful business. Franchisors should think strategically about the placement of franchises to ensure franchisees are not competing with each other. This responsibility is often provided for in the Agreement by an exclusive territory provision.
Providing ongoing support and training
Franchisors often have the responsibility to provide ongoing support and training to franchisees. This role can cover a variety of tasks such as initial training, ongoing business advice, provision of equipment and problem-solving issues which franchisees face. The Agreement may even require the franchisor to provide the franchisee with staff in particular situations.
Ensuring the product and stock supply is consistent
Franchises often have strict supply restrictions to ensure the uniformity of the franchise network and brand reputation. It is the franchisor’s responsibility to ensure that franchisees have access to the necessary stock so that they can carry on business.
The marketing strategy is the franchisor’s responsibility. This ensures consistency across the franchise network and that any brand development happens cohesively. It is also the franchisor’s responsibility to ensure the franchisees have access to any promotional materials they may need to implement the marketing strategy such as logos and banners.
Both the Franchising Code and the Franchising Agreement place extensive responsibilities on franchisors which serve to support franchisees and the growth of the business overall. This summary describes just a few key responsibilities. The franchisor must fulfil a number of other duties as the leader of the franchise network, including uniting the franchisees and developing the business model.