A franchise agreement is a long-term legal commitment, often ten years or more, and it is written by the franchisor’s lawyers to protect the franchisor first. Understanding exactly what it commits a franchisee to before signing is what separates a franchise purchase that works from one that becomes an expensive, difficult-to-exit obligation.
Buying a franchise is often marketed as a lower-risk route into business ownership than starting from scratch, and the brand recognition and proven system it provides can genuinely reduce risk. That protection only holds if the specific agreement being signed is actually understood, not assumed to be standard or fair simply because a well-known brand is offering it.
Read the disclosure document before the agreement itself
Under the Consumer Protection Act, a franchisor is legally required to provide a disclosure document at least 14 days before the franchise agreement is signed, setting out the franchisor’s financial position, litigation history and the actual basis for any earnings claims made during the sales process. Read this document closely and independently verify anything it claims, since it is the clearest legal window into what is actually being bought before the binding agreement is signed. The CPA also gives every franchisee a cooling-off right to cancel the agreement without cost or penalty within 10 business days of signing, by written notice to the franchisor, which is worth knowing exists even if it is never used.
Understand exactly what territory and exclusivity mean
Confirm whether the territory granted is genuinely exclusive, and what happens if the franchisor opens another outlet nearby, sells online in a way that competes with the franchisee, or changes the territory’s boundaries at a future renewal. A verbal assurance about territory protection is worth nothing if the written agreement does not say the same thing.
Know the full cost, not just the upfront franchise fee
Ongoing royalty fees, marketing levies, mandatory supplier arrangements the franchisee cannot opt out of, and any required refurbishment costs at renewal all add up over the life of the agreement and are often larger in total than the initial franchise fee. Model the total cost of the agreement’s full term, not only the cost of getting started, before comparing it against the projected returns.
Understand exit terms before entering
What happens if the franchisee wants to sell the business, and does the franchisor have a right of first refusal or approval over any buyer. What happens if the franchisee wants to exit early, and what penalty or notice period applies. What happens at the end of the agreement’s term: is renewal automatic, at the franchisor’s discretion, or subject to new terms that might be considerably less favourable than the original ones.
Get independent legal review before signing
A franchise-specialist attorney, not a general commercial lawyer and never the franchisor’s own legal team, should review the agreement and disclosure document before signing. The relatively small cost of this review is negligible against the size and length of the commitment the agreement represents.
Frequently asked questions
What must a franchisor legally disclose before a franchise agreement is signed?
Under the Consumer Protection Act, a disclosure document covering the franchisor’s financial position, litigation history and the basis for any earnings claims must be provided at least 14 days before signing.
Is the upfront franchise fee the full cost of the arrangement?
No. Ongoing royalties, marketing levies, mandatory supplier arrangements and refurbishment costs at renewal typically add up to far more than the initial fee over the life of the agreement.
What should be checked about territory rights before signing?
Whether the territory is genuinely exclusive in writing, and what happens if the franchisor opens a nearby outlet, sells online competitively, or changes the territory at renewal. A verbal assurance is not enforceable if the written agreement does not confirm it.
Who should review a franchise agreement before signing?
A franchise-specialist attorney independent of the franchisor, never the franchisor’s own legal team or a general commercial lawyer unfamiliar with franchise-specific terms.
What should be understood about exiting the franchise before signing?
The conditions for selling the business, including any franchisor approval rights, the penalty or notice period for exiting early, and whether renewal at the end of the term is automatic or subject to potentially less favourable new terms.
Originally published in March 2017. Updated September 2026 to add current Consumer Protection Act disclosure requirements and a fuller cost and exit-terms checklist.
