In recent years, a large number of international brands have expanded their business into Australia by using franchising as an expansion model. However, before entering the Australian market as a franchise, it is important that the franchisors are aware of and comply with the detailed regulation on franchising in Australian law as non-compliance may result in significant fines.
The principal law in Australia regulating franchising is the Australian Franchising Code of Conduct. These rules contain a number of requirements which the franchisors must meet before expanding their business to Australia as a franchise.
Below is a highlight of some of the most key points from the Franchising Code of Conduct:
- A standard form Information Statement must be given to potential franchisees within 7 days after they formally apply or express an interest in becoming a franchisee.
- A comprehensive Franchise Disclosure Document containing information on the franchise and the franchise agreement must be prepared by the franchisor and presented to the franchisee. This must be disclosed to the potential franchisee 14 days prior to the conclusion of the franchise agreement, and during this period, the franchisor is not allowed to enter into the franchise agreement or obtain a non-refundable payment in connection herewith.
- The franchisor must as a main rule register itself in the Franchise Disclosure Register before disclosing the Franchise Disclosure Document to the franchisee and thus before the conclusion of the franchise agreement.
- Franchisors must annually update the Franchise Disclosure Document (and present such to the franchisee) and the content of the Franchise Disclosure Register (if applicable), however certain exceptions may apply. The update obligation may also be triggered upon renewal or amendment of the franchise agreement, e.g. if there are material changes hereto.
- Several mandatory contract clauses must be reflected in the franchise agreement, relating e.g. termination provisions and dispute resolution clause.
- Failure to comply with the Franchising Code of Conduct may lead to serious sanctions, including significant fines.
Franchisors should also be especially aware of the Australian Consumer Law on unfair terms in standard form contracts, as these rules are likely to apply, unless (i) the franchise agreement has been subject to substantial negotiation (i.e. no longer a "standard form" contract) or (ii) the franchisee meeting certain thresholds as not being a small business (determined based on the entity entering into the franchise agreement and disregarding the size or revenue of its group companies, i.e. these rules may apply if the franchisee establishes a new entity/SPV for the franchise). If the Australian Consumer Law on unfair terms in standard form contracts applies, significant fines may be imposed for including unfair terms in the franchise agreement.
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.
