The Federal Government has recently introduced some changes to the Franchising Code of Conduct. These came into force as at 1 March 2008.
The changes will affect franchisees in a number of ways including as follows:
1. The disclosure that franchisors need to provide to perspective and current franchisees has been widened. The additional disclosure requirements include the following:
- Additional material of our officers of the franchisor company.
- Franchisors must now include the name of any businesses providing rebates or financial benefits.
- The Disclosure Document must contain the name, location and contact details of each ex-franchisee that has left the franchise system in the last three years whether by termination, transfer, non renewal, cessation of the franchise business or through acquisition by the franchisor unless the ex-franchisee has requested in writing that the details not be disclosed.
- A franchisor’s financial disclosure obligations are extended if the franchisor is part of a consolidated entity that is required to provide audited financial reports of the Corporations Act 2001.
2. The current Disclosure Document must now be provided when the scope of a Franchise Agreement is being extended and not just on renewal or extension of the term.
3. A copy of the Franchise Agreement in the form in which it is to be executed must now be provided to a prospective franchisee at the same time as they receive the Disclosure Document. This means that all the terms of the Franchise Agreement will need to be negotiated and agreed prior to the 14 day formal disclosure period taking place. Please note that even if the parties wish to, they are not entitled to waive the 14 day disclosure period.
4. The Code also no longer exempts foreign franchisors who grant only one franchise or a master franchise to be operated in Australia. That means that where your franchisor is in fact a master franchisee of an overseas brand you will be entitled to the Disclosure Document of the international franchisor.
5. Finally, the Franchise Agreement can no longer contain, or require a franchisee to sign, a waiver of any verbal or written representation made by the franchisor. Such clauses have been common place in Franchise Agreements and were included to protect franchisors.
As can be seen the changes to the Code will affect the terms of the Disclosure Document and the Franchise Agreement. Franchisees should be aware of the additional disclosure that is to be provided to them and should insist that the Disclosure Document is the current version as updated at 1 March 2008 (until the end of the financial year).
The following questions consider some of these changes in further detail.
From HWL Ebsworth
8-Apr-2008