Buying a Franchise

If you already have your eye on a franchise and have made contact with the Seller, the Seller’s lawyer will prepare the Contract of Sale and work with us to finalise the details in the Contract. You don’t need an agent to do this as the Contract is done by the lawyers anyway. If the Seller is using an agent, then often the price is slightly higher to factor in the agent’s commissions. So, if there is no agent, you may save a few dollars. However, you will just need to make sure you work closely with the Seller and keep open lines of communication as often the Agent facilitates this during the transaction. Some franchises will be sold directly to you by the Franchisor too.

In the event you do not settle the transaction, we will only charge for whatever time was recorded on the file so you’re only paying for exactly what you used, plus any searches done for you. In terms of what may be payable under the Contract to the Seller, this will depend on the terms of the Contract. If you terminate on a condition such as Finance or Due Diligence, then it is generally the case that you get your deposit back, so it would only be your legal and accountant’s fees for due diligence to cover off on. As to the Franchisor, there may be an administration fee payable out of your deposit for the time spent by them in recruiting you, but otherwise the Franchisor cannot take a non-refundable deposit prior to you receiving the Disclosure Document.

Often financiers will require that there is a minimum of 7 years left on a lease if the Buyer is looking to obtain a business loan payable over 7 years (they match the loan term to the lease). So, you would just inform us, and we will make a request to the Seller to have the Landlord agree to an extension of the Term of the Lease in the Deed of Assignment, or perhaps even request a new Lease from the Landlord. If the Landlord agrees to a new lease, the Seller’s current lease would be terminated on Settlement and you would likely enter into a new lease direct with the Landlord. We will have a special condition in the Contract of Sale that will allow you to terminate if you do not approve of the lease terms once we’ve provided our advice on the lease too, so you don’t end up suck in a lease with unfavourable terms.

Once you have negotiated a price, the Seller generally will have to offer a first right of refusal for the Franchisor to purchase the store back from them at that price. If the Franchisor declines the offer, then the Seller can sell it to you. So you will both give instructions to your lawyers to draft the terms into a Contract of Sale and then the transaction starts. You will need to do Due Diligence on the business with us and your accountant to make sure the numbers work, and there are no hidden issues. Once you’re happy with Due Diligence and have Finance approved, the Franchisor will issue you with the Disclosure Document which we will review (often it is a few inches thick!) If you are happy with Disclosure, then you will start training in the franchise system and sign Franchise documentation. Then we prepare for settlement and store handover. You will have to pay your franchise fees on Settlement. And then congrats – you’re a franchisee!

This will depend on which State of Australia you are buying your business in, but generally speaking the Seller pays the cost of the Landlord’s legal fees, which often range between $2,000 to $5,000 depending on the law firm the Landlord engages. In some States, such as Queensland, the Landlord cannot charge for a new retail shop lease. You will still of course need to arrange a bank guarantee or security deposit for the Lease and potentially the cost of a fitout.

This will depend on the terms of the Fit Out Contribution Deed and the Lease you sign. Often there will be a period of time that you cannot sell or close your business for (often 5 years) otherwise there is some form of penalty to be paid. We will closely review these documents for you and advise you on the position.

The Landlord has the right to refuse a prospective Tenant if they feel they would not make for a suitable Tenant given their financial background and experience in business (or lack of experience), although the Landlord has to act reasonably. In some cases, the Landlord may require a larger security deposit from the new Tenant if they do not have the same financial resources as the Seller did. You will have to determine whether you can afford the higher security deposit and whether you may need a guarantor for your performance under the Lease. In some cases the Franchisor will hold the lease so you just take an Outlet Licence (like a sub-lease).