Have you ever wondered whether licensing or franchising is the best model to grow your business? Many people wanting to avoid the cost and regulation of franchising will consider licensing as an alternative. But is licensing your business model really an alternative to franchising? What is licensing anyway and what is the difference between a franchise and a licence?
Firstly you cannot convert a franchise to a licence simply by changing the name at the top of the document. The label given to the arrangement has no influence over the legal effect of the arrangement. Franchising is just a form of licensing.
Whether the relationship that you wish to establish is really a franchise or a licence can be determined only in one way. The Franchising Code of Conduct defines certain arrangements as a franchise. The code provides that if certain ingredients are present then a franchise exists.
The cost of preparing legal documentation to turn a business into a franchised system is between $8000 and $20,000 plus GST . This cost may be recovered by the sale of franchises. Once the template documents are prepared the franchisee should pay the franchisor's costs to prepare and issue the documents, as well as the cost of negotiations. We set up franchise systems for clients throughout Australia. Please contact us for an instant quote. The task of preparing this documentation is a routine legal engagement for us however it is a lengthy process where each step in the process must be respected. We can usually provide draft franchise documentation within 2 weeks of receiving instructions.The cost and time involved is determined by the complexity of the system, and the extent to which the client has resolved issues relating to the workings of the system. For example if the franchise system relates to a home or vehicle based system, then the cost is generally not much more than $8000 plus GST. When it is necessary to incorporate procedures relating to retail shop leasing then this would normally add another level of processes and cause cost increases.
What is the effect of a restraint of trade after termination of a Franchise Agreement?
Adacol was a Raine & Horne franchisee at Brighton and Ramsgate in Sydney.
The franchise agreement provided:
“29.1 - The franchisee and the (guarantors) agree they will not for a period of 12 months after termination (for whatever reason) of this deed, conduct or be in any way employed or interested in any real estate agency business which carries on business substantially within a 5km radius of the premises.”
The franchisor terminated the Franchise Agreement on the basis that Adacol “voluntarily abandoned the franchise business or the franchise relationship” prior to the end of the term.
Adacol continued to operate from the same premises but instead as a Ray White franchisee. It was a condition of the Ray White franchise agreement that franchise fees be waived until the end of the Raine & Horne term.