Franchising Code: What Does a Reasonable Opportunity to Make a Return Mean?
from Explain That by Velocity Legal Hosted by Velocity Legal
What does a “reasonable opportunity to make a return” mean for franchisors? Under the Franchising Code, franchisors cannot enter into or renew an agreement if they consider there is no reasonable opportunity for the franchisee to make a return on the investment required by the franchisor. The rule does not guarantee profitability, but it requires careful consideration of the commercial opportunity being offered. In this episode of Explain That by Velocity Legal, Andrew Henshaw is joined by Senior Associate Edward Hart to discuss: how the new requirement operates; why the franchise term must reflect the investment required; significant capital expenditure and the time needed to recoup it; site-specific risks, forecasts and franchisee vetting; transfers of underperforming franchise businesses; and why franchisors should document their discussions and commercial rationale. A practical discussion for franchisors, accountants and advisers entering into, renewing or transferring franchise agreements. For advice on franchise agreements or compliance with the Franchising Code, contact Edward Hart or Velocity Legal’s Commercial team.
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