Following the review of the Franchising Code last year, the government has enacted, by way of regulations, important amendments to the Code.
The regulations were made on 9 August 2007 and commence on 1 March 2008, subject to disallowance by Parliament.
Below is an overview of the amendments to the Code.
In terms of initial disclosure, the key changes under the regulations are that franchisors will be required to:
Provide the franchise agreement (in the form intended to be executed) and related documents (such as leases, hire purchase agreements, guarantees and confidentiality agreements) at the same time as the disclosure document (or, as available, for the related documents).
Provide a copy of the Code with the disclosure document.
Disclose the name of businesses providing rebates or other benefits they or associates will receive, and whether such rebates or benefits will be shared with franchisees.
Provide financial information of any consolidated entity to which the franchisor belongs.
Disclose the names, locations and contact details (but only where available) relating to franchises transferred, ceasing to operate, terminated, not renewed on expiry, bought back by the franchisor, and franchises terminated and acquired by the franchisor (subject to the franchisee the subject of the disclosure requesting otherwise).
Provide the details and the history of the franchise site or territory (required to be provided in a separate document) with the disclosure document.
Directors of a franchisor (rather than just the franchisor) will be required to disclose certain proceedings, judgments or awards.
Franchisors will be prohibited from preventing prospective franchisees associating with franchisees and prospective franchisees (previously this applied to franchisees only).
In terms of continuing disclosure, franchisors will:
Be required to disclose details of undertakings under section 87B of the Trade Practices Act 1974 no more than 14 days after being given.
Have an extra month (now four months) after the end of each financial year within which to update their disclosure document.
Have an extra month (now four months) to prepare an annual statement for marketing or other cooperative funds, and an extra month (now four months) to have it audited.
Now be required to provide franchisees with a copy of the statement and any auditors’ report.
Additionally, in relation to franchisees agreeing that the franchisor not comply with the audit requirements, that agreement will now have to be revisited every three years.
Application of the Code
The exemption from the Code for franchise agreements, where the franchisor is outside Australia and grants only one franchise or master franchise for operation in Australia, has been removed.
The regulations expand the prohibition on the franchise agreement containing releases from liability by now also providing that the franchise agreement cannot include a waiver in respect of any written or verbal representation made by the franchisor.
Although the amendments do not come into effect until early next year, the intervening period will provide time for franchisors to ensure that their:
disclosure documents; and
comply with the more onerous requirements.
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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.
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