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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.
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