eSignature Legitimacy for Franchise Contract in UAE

How to eSign a document: eSignature legitimacy for Franchise Contract in UAE

hi guys um Welcome to our webinar um franchising your business what to include in your franchise agreements my name is Emma Jervis and I'm the practice group leader in charge of legal Visions franchising and leasing team I'm joined today by my lovely colleague kanin who's a lawyer in our team we'd like to start with an acknowledgment of country legal vision acknowledges and pays respect to the past present and emerging traditional custodians and Elders of this nation in particular the category people of the eora nation whose land legal Visions headquarters is situated on and the various lands on which those of you are joining us today now before we begin just a couple of quick housekeeping matters you'll all be emailed a copy of this webinar recording after its conclusion um so no need to take notes you can watch again and again to your heart's content if you have any questions there should be a chat box at the bottom of your screen just pop those in as we go through and then we'll answer them at the end finally there is a survey that will pop up after completion of the webinar and it would be great if you could all complete that we also have complementary legal consultations available um all our webinar attendees are eligible to receive those consults if that's of interest to you just leave your contact details in that survey I spoke about before I'm just going to talk quickly through what we're going to discuss today firstly we're going to be considering some pre-drafting considerations then we're going to talk about some of the big ticket items that you have to decide in setting up your franchise and drafting your franchise agreement some common drafting mistakes um the franchise agreement and how that sits within the franchise Suite of documents including the all-important operations manual a quick discussion on why franchising is worth it and then we'll look at addressing any of your questions I'm going to turn over to henna now to talk through some of the pre-drafting considerations thanks Emma so prior to commencing the drafting of your franchise documentation a key consideration for you to consider is the protection of your intellectual property the intellectual property I'm referring to includes your business name logo and slogans the emphasis placed on protecting your intellectual property is due to it being in essence being the essence of franchising whereby through franchising you are licensing the right for use of your intellectual property to a third party given this the franchises the franchisees will be using your intellectual property in the course of operating their franchise and will want assurance that the franchise system they are entering does in fact have the rights to use and license the intellectual property further it's an important Assurance for you to ensure that you have clear legal grounds to control the matter in which the franchisees use your intellectual property for example if a franchisee goes Rogue and misuses your intellectual property protection will be important for commencing proceedings or taking other action against the franchisee one of the major forms of protection for your intellectual property is registration on IP Australia on IP Australia you will usually be able to register things such as your business name logo and any slogans your business may have foreign matter in which you can protect your intellectual property is through your corporate structure further setting up your corporate structure is an important consideration prior to drafting your documentation it is the fact as it is the foundation on which you'll build your franchise and it is important to consider your corporate structure in light of the operation of your franchise system as well as risk mitigation a typical franchise structure that we would recommend is a dual company structure as demonstrated in this diagram with the holding company sitting at the very top of the structure demonstrated in this diagram further to the holding company there are three separate arms in the structure that will be responsible for different functions firstly the operations arm which will usually be used for stores that you own as a franchisor as well as entering into for example Supply agreements or similar for the operation of the business secondly there is a franchising arm which will be used to Entune to the franchise agreements with your franchisees and finally an optional leasing arm that can be used we choose to enter into leases on path of the franchisees and subsequently license the right to occupy in the structure shown on the previous Slide the holding company will own your business's trademarks and all other intellectual property in light of this the comp the holding company's only purpose should be that of holding intellectual property and should not enter into any agreements with third parties this separation means that if for example a claim is made against you by a landlord for rental arrears this will be made against your leasing entity and your intellectual property ID essence of franchising will not be placed at risk and will remain protected in your holding company again here the key for protection is not using your holding company for any other purpose as doing so runs the risk of your holding company being sued further we should also note that in this form of dual company structure an inter-company intellectual property license agreement will need to be entered into with the franchising entity to enable you to Grant franchises the right to choose your intellectual property held by the holding company now that we've discussed the pre-drafting considerations I will hand over to Mr to discuss the drafting process awesome thanks Hunan um I'm going to talk through as I said some of the big ticket items and this is not intended to be an exhaustive list um when setting up your franchise structure and drafting your franchise agreement there are many decisions that need to be made and a lot of modeling to be done but these are just some of the main considerations so firstly we have territory what area will the franchisees operate in and will it be exclusive some franchise systems are premised on exclusive territories where a map or a list of postcodes will be annexed to the franchise agreement itself and there'll be a clause whereby the franchisor agrees not to Grant any further franchises in that area some have no exclusivity and some have a hybrid model for example exclusive rights of marketing or exclusive rights to receive franchise or referrals within that designated area now deciding on the appropriate territory and the appropriate level of exclusivity requires consideration of a number of factors the industry what your competitors are doing and your expansion plans so looking at industry for example there are some Industries where it's just expected to have an exclusive territory a fitness gym for example someone is not going to want to come in and have to spend up big on expensive fit out and Equipment only to have the same gym open up down the street so they will typically require and expect an exclusive territory looking at your expansion plans if for example you've got you know plans to open 200 sites across Australia you need to make sure in granting your territories that that's feasible and doable right from the start typically that will involve a process of territory mapping which is part of your establishment process the next big ticket item is the equipment and suppliers you need to decide what it is that you're actually going to supply your franchisees and this is both with respect to training but also physical Goods um there are some franchise networks were a franchisor will supply literally everything a franchisee needs to commence Trading there are some where a franchisor will dictate what it is that's required to be obtained but not actually provide them themselves and then of course there are Midway points where a franchisor will supply some things but not everything then you need to look at what's going to be required on an ongoing basis will the franchise or Supply some of those items or will they dictate who the suppliers are if you're thinking for example a fast food franchise McDonald's it's pretty clear that McDonald's requires its franchisees to obtain its pickles from a certain approved supplier it's buns from another a certain approved supplier and this is key to the success of the franchise Network to maintain consistency of branding and product if you're going to have approved supplies typically you would have a clause in your franchise agreement that requires franchises to obtain everything from those approved suppliers and then the approved supplier list and contact details themselves are actually in the operations manual so that it can be tweaked from time to time the next big ticket item is the all-important matter of feeds what it is that the franchisee will actually pay you a typical franchise agreement will have numerous fees itemized but the two main ones are the initial fee and the ongoing fee so the initial fee the initial franchise fee is typically a lump sum amount that is payable on formation of the contract or entry into the franchise agreement the ongoing fee can either be percentage based I.E a percentage of gross revenue or it can even be a fixed weekly or monthly fee typically most franchise systems favor the percentage-based model but I am seeing a growing number of franchise systems premised on the fixed fee um ongoing franchise fee simply because it provides the franchisees certainty of what they have to pay when deciding the Quantum of those fees I can't stress enough how important Financial modeling is you need to consider all of your costs you need to consider the longevity of the franchise agreement the term that I'll speak about in a moment and you really need to carefully model out the franchise business to make sure that the fees you are charging ensure an appropriate break-even point and also allow both parties to benefit from the franchise relationship the next big ticket item as I spoke about before is the franchise term how long will the franchisee have the right to operate the franchise business most franchise agreements do have a franchise term and a renewal term at least how long those terms should be will depend on a number of factors obviously in a franchise where a franchisee is going to be spending up big at the start you know for example an expensive fit out they're going to expect a term whereby there is at least a reasonable period of profitability after break even if you have a franchise system premised on Leasing and in particular retail leasing it's quite common for the franchise term to mirror the term of the lease for obvious reasons you don't want to have a franchise business and no premises or vice versa nextly is termination and what are the termination rights and obligations that will be afforded to both parties it's quite uncommon for a franchise agreement to contain an ability for a franchisee to determinate at will but I am saying a little a little bit more and more in franchise agreements I'm looking at um personally I think it's a good thing I think it shows the franchisee that you trust your brand and you believe that it's going to be successful and it provides that Assurance to an incoming franchisee that they're not going to be stuck in a business they don't want to operate the franchise agreement also needs to set out the circumstances in which a franchise or can terminate the franchise agreement and it's really important that that mirrors certain provisions of the franchising code where the code is quite exhaustive as to what circumstances give right to a rise of termination on the part of the franchisee so nextly um the issue of security so most franchises operate via a corporate vehicle which corporate vehicle doesn't do anything but operate the franchise so there's not often a lot of value there for the franchise or to recover if they owed fees or if they cause damage by the franchisee so typically a franchisor will require a personal guarantee often from each director of the franchisee entity the franchise agreement can also contain ppsr Provisions it's a form of security kind of like a mortgage where you register a mortgage over a house but in this instance you register to register a security interest over personal property which can include the assets of the franchise um and finally reporting and communication a franchisor needs to set out from the start what sort of ongoing meetings they will host will there be franchise network-wide annual conferences for example that need to be attended in person um will there be ongoing meetings of all of the franchisees that franchisees are required to attend and what are the individual franchisee reporting requirements do they have to submit a certain form every week do they have to provide copies of bass immediately after lodgement all of those sorts of things will the franchise all require real-time access to records and the pods will the franchisor be entitled to audit the franchise records all of these bits and pieces need to be set out clearly in the franchise agreement so both parties are aware of what's expected of them in that regard um I'll hand over to hand in now to talk through some common drafting mistakes thanks Emma some of the most common and serious problems in the drafting of franchise documentation is where the documentation is not in compliance in the law in particular the franchising code of conduct and the prohibition against unfair contract terms where the law is not something that parties can contract out of it is important to ensure that your franchise documentation is in compliance with this law in light of this we'll firstly consider the franchising code of conduct which includes some very specific terms regulating the franchisee and franchisor relationship for example the code will dictate the manner in which disputes can take place what the cooling off periods are and how a party can terminate the franchise agreement and the relevant time periods for doing so further the code includes some overarching requirements including that of good faith as such drafting the documentation the obligation of good faith should be considered in every clause we should note that Affiliates comply with the requirements under the code can attract significant penalties Lee we'll consider the unfair contract terms the prohibition against unfair contract terms apply automatically at law to all standard form contracts whether or not franchise agreements fall into the statutory definition of standard form contracts is a gray area particularly where the franchisor is open to negotiate terms however this is still an important consideration in drafting your documentation a term is considered unfair if it would cause a significant imbalance to the party's rights and obligations under the contract for example this would include where a term gives powers to one party it would ordinarily have or where it protects one party in a way that puts the other party at a disadvantage further this also includes where the term is not reasonably necessary to protect the legitimate interests of the party that would benefit from its exclusion and where a term would cause Financial or other detriment for example delay to a party who is relying on that term okay the weather a term is in fact unfair the court will take into consideration the extent to which the term is transparent meaning whether it's expressed in plain language whether it's legible presented clearly and readily available to the party affected by it as well as the contract as a whole some examples of unfair contract terms in the franchising context includes for example where the franchisor May unilaterally change the fees payable under an agreement or where for example the franchise or changes the territories under the franchise agreement unilaterally if an unfair contract term is found in franchise documentation the court can declare that term avoid and unenforceable and the party that relies on the unfair contract term may have a right to damages a bill being a proposed law that has not yet been become law yet um has been introduced in Parliament where penalties will apply for unfair contract terms so that is something to keep in mind as well now I'll hand over to Emma who will discuss the franchise Suite of documents thanks and then um we've spoken a lot about the franchise agreement but it's really important to understand when you're setting up a franchise that the franchise agreement is just one of a suite of documents it's arguably the most important document it's the contract but there are a raft of other documents that need to be prepared by a franchisor setting up a franchise most importantly is the Disclosure document this is a prescribed form document the contents are actually and it next to the franchising code it's a long comprehensive snapshot in time document that provides certain details about the franchise Network those sorts of details include the number of franchisees the number of terminations or sales in the last three Financial years an itemization of all of the intellectual property owned by the franchisor details of rebates received if they're shared to the benefit of the franchise Network and in addition there's an itemization of all of the costs and expenses the franchisee will or could reasonably reasonably be expected to incur during the franchise term obviously particularly in for example a fast food franchise again that's a very long list and the table of expenses is up on page after page after page now that DD that Disclosure document needs to be updated annually by the end of October every year franchisees have a right to request a current updated copy and of course a current copy needs to be supplied to incoming or renewing franchisees in addition to that disclosure document there is now a key fact sheet it's essentially a condensed version of the Disclosure document um in addition a franchisor must provide incoming franchisees usually right at the inquiry stage with an information statement it's not something you have to draft it's published by the a Triple C and can be downloaded from their website but it must be supplied and finally a copy of the code itself the franchising code of conduct needs to be supplied to all incoming franchisees from that you have a pretty thick bundle of documents or obviously electronic bundle of documents that needs to be supplied to the incoming franchisee at least 14 days before they can sign the franchise agreement or pay non-refundable Monies once they have signed the franchise agreement the franchisees then afforded a further 14 day cooling off period during which they can elect to terminate the franchise agreement in addition to that is legal documents another important document in your franchise network is the operations manual I'll hand over to Hannan to talk a little bit more about what that one is thanks Samuel so as discussed by Emma one of the most important documents is the franchise agreement which forms the contract between the parties and within that franchise agreement commonly there will be a provision that will require the franchisee to comply with the operations manual this operations manual will specify the more practical aspects of running the franchise business given this the operations manual is typically prepared by the franchisor as they would be in the best position to dictate the day-to-day requirements of running the business the nature of an operations manual largely differs between different franchise systems however the manual the manual commonly include the following firstly you might consider technology which will prescribe what software or accounting systems must be adapted by the franchisee and how they are set up run and updated the manual may also set out exactly what is required with respect to reporting and may also include templates and other prescribed forms for the franchisees to use the manual may also contemplate client and customer interaction any script or manner of interaction required by the franchisees interactions with clients or customers for example we're pretty sure that the line do you want fries with that as is contained in McDonald's operations manual so if you have any specific readings or prompts the operations manual is the place to put this information further the manual can also prescribe requirements in relation to presentation so for example color scheme these are the like and as discussed by Emma previously the operations manual will usually be the place where the franchisors list the prescribed suppliers to maintain consistency across its franchise Network using McDonald's as an example again it's likely that the operations manual prescribe exactly where the franchisees May purchase their pickles buns Etc yeah in relation to pricing structure this is usually included in the franchise agreement however the operations manual can also include updates for that structure and also prescribed costs to end customers can be included here as well now as discussed previously the code does include a formal dispute resolution procedure that franchisees and franchisors must follow however it's also really important to have your own internal procedure and this can usually be included in the operations manual of course given that it doesn't it is not contrary to the code and finally the operations manual may include contact details for staff for example line managers IT workers Etc now as discussed earlier the operations manual will really differ from franchise Network to franchise Network depending on the Practical requirements of your business however that is just a snapshot of the general practical matters that are addressed in your operations manual now I'll hand over to Emma to discuss why it's worth franchising thanks and then um obviously there's a significant amount of work in drafting a franchise Suite of documents and setting up a franchise system it's something that if you're considering franchising will be one factor in that consideration another factor of course is the benefits of franchising the sharing of intellectual property the fact that many parties can benefit from the same promotion the sharing of ideas and improvements um obviously as a franchise lawyer I like to keep abreast of what's happening in the franchise world and I've read a number of reports that set out the higher success rate of franchising versus an independent business the figures vary as they do but one report I read recently showed that franchises have about an 80 success rate compared to about half that for independent businesses um that was taken from a national retail association report so there are benefits and it can be worth it but it's important that it's done right from the start um guys that concludes the main part of our webinar you may also um wish to download our franchise or handbook by accessing the handout section in your webinar panel that talks about the things that we've talked about today but just in that little bit more detail just a reminder if you've got any questions please feel free to pop those in the little box down the bottom we've also got an upcoming webinar that might be of interest to you on the 3rd of November creating and selling air your legal requirements so a very Hot Topic at the moment and getting lots of registrations now just while you are submitting any final questions um I'll take a minute to talk about Elvis membership offering it's a cost-effective alternative to expensive hourly rates that we all know exist in the legal world for an affordable monthly fee you receive cost certainty and all-inclusive legal services including unlimited document review drafting including all of those franchise documents we spoke about before um and your annual franchise disclosure updates your business's usual contracts your commercial leases it also includes unlimited advice consultations with our 100 plus specialist lawyers including our fabulous franchise team business structuring lawyers employment lawyers dispute lawyers and importantly it also includes unlimited domestic trademark registration which is very important in a franchise Network for our franchise or clients we really try and be their in-house Council and take care of all of their franchising needs this is particularly helpful in the franchising space the code was amended last year so the franchisors can no longer pass on costs or legal fees after certain things to their franchisees after entry into the franchise agreement Once Upon a Time franchises would cost on the pass on the cost of breach notices any sort of warning letters renewals all of those sorts of things and that can no longer occur so the subscription model certainly provides certainty of what the illegal expenditure will be um if you'd be interested in membership certainly please request a free consult when the survey appears at the end of this webinar okay guys awesome um again please feel free to pop any other questions we're just going to answer a couple of questions that have already been submitted um so I've got one here what if a franchisor provides the franchisee with their terms and conditions and the franchisee gets legal advice and request changes to the agreement and its Clauses and the franchise or disagrees to any change at all from the several requests of the franchisee is that unfair as the franchisor is having a take it or leave a policy it's not the refusal itself is not unfair but what this circumstance does is makes it more likely but that the franchise agreement itself will be deemed and unfair sorry a standard form contract and thus be um liable for Clauses to be set aside under the unfair contract regime um we generally tell our franchisors that if you get a request for amendments take it seriously and generally it's a good idea to try and agree to some it firstly shows that you have a conciliatory approach with your franchisee but also will help avoid the application of that law um I'll hand over to hanin for the next question thanks Emma so one question that's come through is do you have any indicative costs for the preparation of The Suite of documents so if you're interested in franchising and you would like us to draft your documents I strongly suggest that you take the free consult that we have available to all registers of the this webinar and we can discuss your options in relation to membership and we can certainly draft your documents under our Prem membership here at legalvision awesome thanks Hunan um I should just say on that it's always worthwhile having your documents drafted by a franchise specialist we've seen some weird and wonderful documents come across our desks in our franchise team at legalvision um so it's really worth engaging someone who actually knows what they're doing and knows the code inside out um the next question I was wondering about misuse of brand and how you can use this to terminate agreement immediately for malicious behavior harming the brand this is a little bit of a complex one so I'll try and break it down as much as I can there's sort of two live issues here firstly the ability to terminate and then the malicious damage issue so as I said before the code is really prescriptive as to when a franchise all can terminate a franchisor can only terminate if what a commonly referred to as the special circumstances are triggered that's things like fraud abandonment of the franchise business insolvency committing a serious crime um depending on the precise circumstances of the misuse of the brand it's unlikely that one of those special circumstances would be triggered so a franchisor would not have a right of termination in that regard all they could do is issue a breach notice and require rectification if the rectification action is not taken within the prescribed time the franchise or then can terminate the business and that's all set out very clearly in the code otherwise where there has been misuse of the brand and it's caused damage to the brand it's really important that your franchise agreement contains really appropriate Indemnity Provisions as well as Provisions requiring franchisees not to misuse the brand or do anything um which would be contrary to the value of the Good Will of the franchise brand here if you've got a properly drafted Clause setting out their obligations as well as a properly drafted indemnity clause you can apply the indemnity to any damage caused by virtue of their breach of the obligation Clause so that they are actually liable for any damage caused to the brand um hopefully that answers the question quite simply um now guys we don't have any other questions that have come through so if there are no other questions we can wrap up now um don't forget again if you require a free or would like a free consultation please pop that um in your details in the survey that's going to come at the end of the webinar and behalf of hanin and myself thank you so much for joining us thank you