Franchising Code Changes Imminent

The Federal Government has moved quickly to implement its response to the recent parliamentary inquiries concerning franchising and unconscionable conduct, with amendments to the Code likely to be announced shortly. It is expected the changes will take effect from 1 July 2010 to facilitate efficient amendment to disclosure documents by franchisors with a June 30 financial year.

The Government has already flagged the nature of the amendments, with most being procedural or clarifying existing drafting ambiguity, referencing or formatting. It is expected that the most important new requirements will be:-

1. Franchisors will need to include specific information concerning renewal of the agreement, and end of term arrangements.
2. Franchisors will be required to disclose any significant capital expenditure requirements relating to end of term arrangements.
3. Franchisors will need to give a franchisee advanced written notice (possibly at least six month's in advance) of the franchisor's decision either to renew or not renew the franchise.
4. Franchisors will be required to disclose the circumstances in which the franchisor has unilaterally varied a franchise agreement in the past, and the likely future circumstances in which unilateral variations may occur.
5. Additional disclosure will be required in relation to whether the franchisor will require the franchisee to undertake significant (and not otherwise undisclosed) capital expenditure during the franchise agreement.
6. Details will need to be provided of any confidentiality requirements included in the franchise agreement.

The Government rejected calls to include a new statutory good faith obligation, but it is expected that additional guidelines will be issued in relation to behaviour when engaging in dispute resolution under the Code.

• In summary, the amendments are likely to be non-contentious and improve the quality of disclosure to franchisees in the areas of end of term arrangements, future capital expenditure requirements and unilateral contract variation in a manner which is pragmatic and cost-effective. If introduced within the next few weeks the timing will minimise the additional compliance cost.

When the Government announces the changes a detailed update will be provided to all of our clients. For more information in the meantime contact Stephen Giles.

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