For the past 20 months the Federal Government has been
contemplating changes to be made to the Franchising Code of
Conduct. Whilst we await the final legislation to be released, our
best guess as to how the new legislation will read is as
The new Code will come into effect from the 1st of January 2015
and will apply immediately to all franchise agreements;
The provisions of the Code (notably good faith) and new
pecuniary penalties apply to conduct as and from 1 January
Franchisors will be required to provide prospective franchisees
with a new Information Statement which explains franchising and
outlines some of the potential risks;
There will be a new form disclosure document for franchisors
and will exclude provisions such as clause cross-referencing
requirements. However there will be additional disclosure in
e-commerce and online sale arrangements;
franchisee capital expenditure requirements; and arrangements
that apply at end of term, and more
explicit disclosure if a franchisee has no right to a renewal
or extension of the agreement or to enter into a new agreement at
end of term;
Obligations relating to marketing funds particularly the
requirement to have all funds paid into a separate bank account and
an explanation of the expenses for which the marketing fund will be
used for will need to included in agreements;
A new codification of the common law duty of good faith will be
There are likely to be new provisions concerning disputes,
including prohibition on dispute resolution occurring outside the
state where the franchised business is located and a prohibition on
the franchisor passing on its dispute resolution costs;
Whilst we suspect that the Code will include transitional
provisions that may allow franchisors to defer updating the
disclosure document following the implementation of the new Code in
January until after 30 June 2015, or in effect, 31 October 2015,
this is yet to be confirmed.
Nonetheless if a franchisor decides to not change its disclosure
document the terms of the franchise agreement will be affected by
the new Code as of and from 1 January 2015. Changes to franchise
agreements may be necessary to address issues such as restraint of
trade, compensation (if any) at end of term and unfair contracts
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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