A cautionary message to would-be franchisors

When it comes to corporate shock and awe in 2019, the appalling findings of the Banking Royal Commission will be impossible to top.

But around the same time as the fall-out from unethical banking practices was being felt, another sector of the business community was exposed for equally unethical behavior.

Midway through March, a Senate inquiry into Australia’s franchising industry was finalised, generating a damning 369-page report.

Drawing from over 200 submissions, the committee found widespread exploitation of franchisees.

The report unveiled some frightening practices of “churning and burning”; an under-handed process where franchises are bought and sold purely to make quick bucks from sign-up fees.

It recommended a suite of new measures including stricter regulations around franchising agreements, better safeguards for franchisees and stiffer penalties for franchisors that don’t toe the line.

But with these improvements still not guaranteed, would-be franchisors need to be super vigilant before signing-up. This is where good legal advice is vital.

Nightmarish tales of buyers’ remorse have become the norm in recent times, with a recent study showing that over 60 percent of operating franchisors rate the decision to invest as the worst of their business lives.

So even for those who aren’t driven out of business by onerous purchasing restrictions and what feels like extortionate fees, the reality is likely to be very different from what was imagined.

Our commercial law team, headed by Partners Darrell Pannowitz and Paul Tonkin, are experts in this field, and are well aware of all the risks involved in buying a franchise. Engaging an expert set of eyes to review your agreement is a highly recommended step in an industry with such a dubious track record.

And with the regulations and laws around franchising about to change, current franchisees and franchisors will soon need to adapt to the new landscape. Understanding their rights and obligations is an essential part of that. Over the next few months, our commercial law team will be keeping a keen eye on Parliament’s response to the Senate report. If and when new legislation is introduced, franchise industry stakeholders can be assured that Tonkin Drysdale Partners will be on top of the changes and ready to advise the best way forward.


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