Court decision sheds light

Written on the 6 July 2009

A RECENT Queensland court decision has shed light on the rights franchisees have to sell their business.

According to industry commentators DC Strategy, it also affects the ability of franchisors to refuse consent for the sale of the franchise.

The Franchising Code of Conduct (Code) requires that franchisors must not unreasonably withhold consent to the transfer of a franchise. The issue to arise surrounds the circumstances that can be judged as ‘unreasonable’.

In the decision, the court made it clear that refusing consent to the transfer could not be considered unreasonable if a franchisor was acting in the legitimate interest of the franchise system’s long term success.

The court further found that although the code describes when a refusal will be considered reasonable these are simply examples and do not make an exhaustive list of the only reasons available. In essence, the franchisee bears the burden of proof to establish that a franchisor’s refusal to grant consent to a transfer was unreasonable.

Therefore, if the franchisor has clear policies and selection criteria for potential franchisees, it is within its rights to refuse consent for transfer to a party that does not meet those criteria.

Franchisees intending to sell are advised to get a clear understanding of the criteria and therefore, be aware when the franchisor may be justified in refusing to grant consent for a transfer.

The ACCC received more than 400 complaints last year from consumers and businesses about franchising and those that had not complied with the code.


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