If you are a franchisor or a franchisee, it is important to note that amendments were made to the Franchising Code of Conduct ("Code") on 1 June 2021. Most of these amendments will apply to franchise agreements entered into, renewed or extended on or after 1 July 2021, unless an exception applies.
Some of the changes which have been made to the Code are as follows:
Pre-entry disclosure information
More information is required to be provided by a franchisor to prospective franchisees before entering into a franchise agreement (subject to the timeframes specified in the Code), such as:
- a key facts sheet (which is in addition to any disclosure statement required to be provided to a prospective franchisee under state or territory laws);
- information about leases, if relevant, including a copy of the lease or if no copy can be obtained, a summary of the commercial terms, and any other written information that has to be given to a tenant in accordance with state or territory law;
- additional information is to be included in the disclosure
statement, including in relation to:
- rebates and other financial benefits that franchisors receive from suppliers;
- leases for the operation of the franchised business;
- dispute resolution;
- termination of the franchise agreement, including the circumstances in which the franchisor and franchisee can terminate the franchise agreement early;
- restraint of trade obligations;
- capital expenditure; and
- goodwill and franchisees' rights.
Cooling Off Period
The Code now provides that a franchisee may terminate a franchise agreement within 14 days after the parties enter into a new franchise agreement (cooling off period).
In addition, there is also a cooling off period for existing agreements that are transferred between an old franchisee to a new franchisee under the franchise agreement.
A franchisor may require that a franchisee make payment of the franchisor's legal costs relating to preparing, negotiating or executing the franchise agreement, before the franchisee starts the franchised business and provided that the amount is specified in the franchise agreement in accordance with the requirements of the Code.
Varying a Franchise Agreement
The Code provides that a franchisor must not vary a franchise agreement with retrospective effect unless the franchisee has given written consent to the variation.
Restraint of Trade
Amendments have been made by the Code in relation to the inclusion of restraint of trade clauses in franchise agreements. For instance, the Code provides that a restraint of trade clause in a franchise agreement has no effect after the agreement expires if immediately before expiry, the franchisee was not in serious breach of the agreement or any related agreement.
Provisions have been included in the Code in relation to the types of dispute resolution options available such as: conciliation, mediation and alternative dispute resolution methods, dispute notifications between parties and resolving disputes of multiple franchisees with a single franchisor.
The Code sets out the circumstances in which franchisors and franchisees can terminate the franchise agreement early as well as procedures.
Marketing fund obligations have now been clarified by the Code to apply to the fund administrator. For instance, this may be a franchisor, a master franchisor or a third party authorised to administer the fund.
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.