Changes to Franchising Code from 1 July 2010

The Federal Government has introduced some changes to the Franchising Code of Conduct which take effect from 1st July 2010. The key changes are:- 

• End of Term
  
  A Franchisor must notify the Franchisee at least 6 months before the end of the term of the Franchise Agreement as to whether or not the Franchisor will renew or not renew the Franchise Agreement.
  
  It will accordingly be important for all Franchisor’s to diarise the relevant dates so that they give notice to their Franchisee’s by the required time.

•  Warning
  
  An additional warning sentence is to be added to the preamble to the Disclosure Document as follows:-
  
  “Franchising is a business and, like any business, the Franchise (or Franchisor) could fail during the Franchise term. This could have consequences for the Franchisee.” 

• Payments
  
  An amendment has been made to the standard Disclosure Document requiring the Franchisor to list each recurring or isolated payment that may be payable by the Franchisee to a person other than the Franchisor. The Franchisor must provide a description of the payment, the amount of the payment, when it is due and whether it is refundable.

• Unforseen Capital Expenditure
  
  The Franchisor is required to now state in the Disclosure Document whether it will require the Franchisee at any stage to undertake unforseen significant capital expenditure. This may include for example a requirement to refurbish premises or to buy new equipment.

• Process at End of Agreement
  
  A new clause is to be added to the Disclosure Document requiring the Franchisor to set out the process which will apply at the end of the Franchise term, including whether the Franchisee will have any options to renew the agreement. If so, the Franchisor must set out the processes that it will use to determine whether or not to grant the renewal and whether the Franchisee will be entitled to an exit payment.
  
  The Franchisor must also provide details of arrangements that will apply to unsold stock, marketing material and equipment including whether the Franchisor will purchase such stock, marketing material or equipment. If so, there must be disclosure of how the prices will be determined.

All Disclosure Documents issued with Franchise Agreements on or after 1st July 2010 will need to comply with the amended Code.

Partners

Web Master
Click to view profile.

Partners

Marcus Woodfield (LL.B) Partner
Click to view profile.