HWL Ebsworth - How has the process for issuing and updating franchise documentation changed under the Code?
The Franchising Code of Conduct was amended in March 2008, with the intention of providing franchisees with greater transparency and an improved access to information in the franchising process. Subsequently, franchisors will need to be aware that their disclosure and procedural obligations have increased as a result of the amendments.
The Code provides that parties cannot enter into a Franchise Agreement, create an agreement to enter or exchange non-refundable money until at least 14 days after the franchisor has provided to the Franchisee or Prospective Franchisee, copies of:
- the Franchising Code of Conduct;
- the Disclosure Document; and
- the Franchise Agreement,
Practically, the amendments mean that the 14 day period may only commence once a franchisor has provided the final version of the Franchise Agreement to the prospective franchisee with the Disclosure Document. The final version would incorporate any negotiated changes as well as all the parties’ details.
Furthermore, if the parties are creating secondary agreements - such as leases, licences, hire purchase arrangements, trade mark authorisations or confidentiality agreements, the franchisor is also required to provide copies and summaries of such documentation to the franchisee. Again, this is required to be 14 days prior to the Franchise Agreement being signed, or when they first become available to the Franchisor.
However, franchisees were not the sole focus of the amendments and franchisors will also obtain practical benefits from the amendments to the Code. Previously, the period for creating end of financial year disclosure documents, co-operative fund audits and consolidated entity reporting, was restricted to three months. However, industry experience indicated this was onerous and represented an insufficient period of time. Under the newly introduced amendments, this will be extended to a period of four months from the end of the financial year.
The procedural requirements implemented by the amendments will provide practical benefits to both franchisees and franchisors, with the result being more comprehensive negotiations and disclosure.
By HWL Ebsworth 08.04.2008
FCA Member
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