One of my US friends drew my attention to an investigation launched against an Arizona-based franchise broker due to an alleged violation of Florida's real estate licensing statutes. Apparently, the allegation stems from Florida's broad statutory definition of "broker" in the real estate law, which says that a "broker" is any person who receives compensation for (among other things) offering "the sale, exchange, purchase, or rental of . . . business opportunities" or who "takes any part in the procuring of . . . purchasers of business opportunities." The alleged violation related to an advertisement for a franchise opportunity. My US friend commented that in his view there was a strong argument that franchise brokers who offer for sale business opportunities or assist in procuring purchasers for those opportunities would be considered "brokers" under Florida real estate law.
This raises an issue that we mention from time to time to our Australian franchising clients and contacts. A quick scan of the numerous business opportunity and franchising publications and directories in Australia would find literally hundreds of similar advertisements. Essentially, the same definition applies in Australia to activities that need to be conducted by a licensed real estate agent in accordance with the various State licensing laws. As far as I can determine few franchising brokers are licensed real estate agents, let alone licensed to operate in every State in which they operate. And franchisors are increasingly seeking to get involved in the sale of franchises and businesses, sometimes through people who are not employees of the franchisor.
I am not aware of any Australian prosecutions, but suspect it is only a matter of time. Failure to comply with the relevant Australian legislation is typically an offence, with fines and other consequences. However where a franchisor is involved there may be further exposure, notably in relation to the enforceability of any franchise agreement signed. This is an issue that merits specific advice, but the following should raise alarm bells:
- situations where actual sale of business advertisements are placed for a specific business;
- remuneration arrangements that are akin to commissions or success based;
- franchisors that charge a fee for assisting with the sale of business process and the franchisor actively seeks potential purchasers;
- franchisors or third parties that get involved with the sale of existing businesses, as opposed to greenfield sites where there is no existing business.
Franchisors selling franchises or indeed their own corporate stores is typically not a problem, but when third parties are involved either as the vendor or to help facilitate the sale the matter merits consideration.