Changes to the Franchising Code of Conduct

In response to the recent issues concerning franchising and unconscionable conduct, the Federal Government has amended the Franchising Code of Conduct. From 1 July 2010, the Franchising Code of Conduct changes will apply to franchise agreements entered into after that date.

Changes to disclosure requirements

The code has been adjusted to include new disclosures that will be mandatory from 1 July 2010 for franchise agreements entered into after that date. This has created increased disclosure requirements on franchisors, who will now bear even greater disclosure responsibilities across a number of key areas.

• Renewal or new offer: At least six months before a franchise agreement expires, franchisors will need to inform their franchisees of the franchisor's decision to renew or offer a new franchise agreement.

• Unforeseen significant capital expenditure: The franchisor will need to disclose whether the franchisee will be required to undertake unforeseen significant capital expenditure that was not disclosed by the franchisor before the franchisee entered into the franchise agreement.

• Unilateral variation of franchise agreement: Information about terms providing a franchisor with a right to vary the franchise agreement unilaterally will need to be included, as well as information on circumstances where the franchisor exercised that right since 1 July 2010.

• Amendment of the franchise agreement when transferring: Whether the franchisor will amend (or require the amendment of) the franchise agreement on or before the transfer or novation of the franchise must also be disclosed.

• Recurring or isolated payments: Recurring or isolated payments that are reasonably foreseeable by the franchisor as payable by the franchisee to a person other than the franchisor or the franchisor's associate.

• Dispute resolution costs: Franchisors must disclose whether their costs (including legal costs) of dispute resolution will be charged to the franchisee. The amended Code now also provides a list of necessary actions in an attempt to encourage parties to approach a dispute resolution process in a reconciliatory manner.

• Changes in the scope of the franchise agreement: A disclosure document will be required to be given before a franchisee is granted an extension in the scope of its franchise agreement. This will mean that a disclosure document will be required before an agreement is amended to add new products, new trademarks or an enlarged territory to the franchise.

Other notable changes:

• Risk Statement: Under the latest changes to the Franchising Code, the following additional statement must be included on the first page of the disclosure document:

"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."

• Audit of marketing funds: Under the latest changes, any agreement not to audit needs to occur within 3 months of the end of the relevant financial year and will last 3 years.

• Good Faith: While the Franchising Code does not introduce a separate obligation to act in good faith it will from 1 July 2010, include a provision that nothing in the Code limits any obligation imposed by any other law or statute to act in good faith
  
   

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