On 3 June 2010, the Government released the Trade Practices
(Industry Codes – Franchising) Amendment Regulations
2010 made under section 172 of the Trade Practices Act
1974 (Regulations). The Regulations give
effect to the Government's proposed reforms to the Franchising
Code outlined in our March 2010 update, which you can view
In essence, the Regulations increase franchisors' disclosure
obligations, providing clearer information upfront to prospective
franchisees about the franchise system. The Regulations will
commence on 1 July 2010 and franchisors are responsible for
ensuring that their disclosure documents incorporate the additional
A full copy of the Regulations is available
here, however we list the key changes below.
Additions to the Franchising Code
Pre-expiry notice: a new clause will be
inserted into the Code requiring franchisees to notify the
franchisor, at least six months prior to expiration of their
franchise agreement, of their decision to renew or not to renew
their franchise agreement.
Good faith: a new clause will be inserted to
provide that nothing in the Code limits the obligation imposed by
the common law on parties to act in good faith.
Dispute resolution: the Code will incorporate
a non-exhaustive list of behaviours expected of franchisors and
franchisees when engaging in the dispute resolution process. These
include participating in meetings, observing confidentiality
obligations and preserving the reputation of the franchise system
pending the resolution of a dispute.
Additional disclosure requirements for franchisors
Franchise business failure: franchisors are to
provide a statement in their disclosure document that franchising
is a business and, like any business, the franchise could
Other payments: franchisors must disclose to
prospective franchisees, to the extent they are reasonably able to
do so, payments to be made by the franchisee to third parties.
Third party payments might include stamp duty on agreements and
licences or leases, legal fees and accounting fees.
Unforeseen capital expenditure: franchisors
must disclose to franchisees whether or not they will require them
to undertake significant capital expenditure that was not foreseen
(and therefore not disclosed) before entering the franchise
agreement. Significant expenditure may include shop re-fits, new
capital equipment or implementation of IT infrastructure.
Unilateral contract variation: franchisors
must disclose to franchisees any unilateral variations to a
franchise agreement in the last three financial years and the
circumstances in which any unilateral variations may occur in the
Confidential obligations: franchisors must
disclose to franchisees the type of information that must remain
confidential, including settlement of disputes, intellectual
property and trade secrets.
End of agreement arrangements: franchisors
must disclose to franchisees the process that will apply at the end
of the agreement, including any options to renew or extend, the
franchisee's entitlement to exit payments, the franchisee's
right to sell the business and treatment of unsold stock and
Implications for franchisors
Franchisors are required to update their disclosure documents
annually, within four months of the end of the financial year (that
is, by 31 October). In view of the above changes, franchisors must
ensure that when updating their disclosure documents this year they
are careful to include the additional disclosure requirements.
Gadens Lawyers can assist franchisors to review
their disclosure documents to ensure they are compliant with the
new Regulations, as well as advise prospective franchisees on their
legislative rights and entitlements when entering into a franchise
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