24th August

Should I become a franchisee?

If you’re considering becoming a franchisee we’ve set out some initial considerations and advice to assist you in deciding whether it is the right option for you.

The team at ASCO Legal has a wealth of experience acting for both franchisors and franchisees. Alistair van Schalkwyk and the team at ASCO Legal, have many years’ experience acting for clients in both New Zealand and overseas. Alistair has been involved in drafting the Code of Practice for the Franchise Association of New Zealand Inc. which is the industry standard. ASCO Legal also authors the franchise precedents for New Zealand's market leader of precedents used by lawyers nationwide.

Click below to read more about whether or not becoming a franchisee is right for you...First Steps: Getting in to franchising?

If you are interested in becoming a franchisee there are a number of key business principles on the suitability of the franchised business to consider, this is even before considering the technical legal implications which are discussed below.

  • Suitability of the franchisor
    • Is the franchisor passionate, knowledgeable and committed to their business and franchise?
    • Have they exhibited availability to you, the business and other franchisees and are they someone you’d want to partner up with for the long-haul?
    • Have all your queries been answered clearly and timely?

  • Suitability of the franchised business
    • Is the franchise business well established with a history of making a profit? Or is it new and lacking a tested trading history, established systems and track record?
    • Is the brand reputable and well-established?
    • Is the franchise distinctive, is the model transferable, understandable, and suitable to you?
    • Is the franchise affordable and inexpensive to operate?
    • Will you be able to raise the required finance based on the operations of the franchise?

Some aspects of an unsuitable franchise are if it is a product or service that is likely to have a market for a limited time, if the margins are too low, if the geographic market is too limited.

The Nitty Gritty: What are the benefits of using a specialist franchising law firm?

Purchasing a franchise, whether it is an existing business or setting up a new franchise, is a big step. Your financial future depends on the success or failure of your new business, and essential to achieving that success is getting it right at the start. To help you do that it is critical to get advice from advisers who can draw on wide franchise industry experience and knowledge. They can help you to ensure you understand what you are committing to, ask the right questions, and negotiate better outcomes for you.

When you purchase a franchise you will be dealing with a number of different parties such as: the franchisor (or master franchisee), the vendor, the landlord, bankers, employees, suppliers and others. There will be many critical details you will need to look closely at and understand. There will also be arrangements to make, both before you make a binding commitment, and during the purchase process. Commitments made at this time are long lasting and will usually bind you for a number of years.

Franchising is a specialist area of the law. You will need advice from lawyers who are familiar with and able to assist you through these and other issues, and especially how they apply and come together in a franchise, and with franchise systems and who understand and have a sound background in the franchising industry. Details which will need to be considered include such things as:

  • Franchising
    • Do you receive an exclusive territory and, if so, what can you do that others can’t in that area, what can they do in there, what can’t you do outside your territory?
    • What is the Manual and how does it bind you now, and what if it is changed later?
    • Should you get a disclosure document and what to make from the information?
    • How easily can you sell your business later if you wish to, and what could prevent that?
    • Are the terms fair, particularly taking into account the obligations imposed in terms of the Fair Trading Amendment Act, 2021 regarding “standard form small trade contracts”, and as applicable.
  • Leasing
    • If a lease of property to operate the business from is required, does the lease period match the term of your proposed franchise? – and, if not what can you do about that, and when?
    • Personal guarantees to and consents for assignment from the landlord (and others);
    • How fast can the landlord increase the rent?
  • Employment Law
    • Pre-recruitment planning: you have options which can help you, but only if you know about them;
    • Employment contracts.
  • Property & Conveyancing
    • Using property as security and registering mortgage/s and other charges over your property/ies to facilitate this;
    • What to do if there is leased property and the landlord requires a rent guarantee from your bank, (which will want to add that to the mortgage)?
  • Trust Law & Asset Structuring
    • Setting up a company or other structure for your business
    • Setting up a trust or other structure to protect your personal assets from business risks
    • Being a franchise specialist law firm means our team can provide you with experienced specialist advice drawing on a bank of experience knowledge and skills and other resources tailored to help you with the important steps you are taking.

How can we help?

ASCO Legal can assist you with:

  • Purchase of your franchise
  • Review of franchise documentation and provision of independent legal advice for prospective franchisees
  • Negotiating initial documentation requirements with the franchisor
  • Employment Law, including pre-recruitment planning, drafting of employment contracts, advising in relation to performance and disciplinary issues, disputes and terminations
  • Review of lease documents and negotiating with landlords as required
  • Company incorporation and set-up and asset structuring, and also the creation of trusts as required