The new Franchising Code changes apply from 1 July 2010. What does this mean for Franchisors?

As of tomorrow Franchisors should have updated their Disclosure Documents and processes to comply with the amended Code.  

In order to ensure Code-compliance, any franchise agreements issued or entered into on or after 1 July 2010 must be accompanied by an updated version of the Code and a Disclosure Document which incorporates the prescribed amendments.   

Key changes which Franchisors will now be required to incorporate into their Disclosure Documents include:  

• the prescribed statement on the front page must include an express warning that the franchise or franchisor could fail;
• details of all amounts payable by franchisees to persons other than the Franchisor or its associates, that are within the Franchisor's knowledge or control, or which are reasonably foreseeable by the Franchisor;
• details of any "unforseen significant capital expenditure" which franchisees will be required to undertake;
• details of various processes which apply at the end of a franchise agreement, including:  

• any rights of the franchisee to renew or enter a new franchise agreement and what processes the Franchisor will use to determine whether to grant the renewal or new franchise agreement;
• any rights of the franchisee to an exit payment and how such payment will be determined;
• arrangements to be made regarding unsold stock and assets;
• any rights of the franchisee to sell the franchised business and whether the Franchisor will have a first right of refusal;
• any amendment to the franchise agreement required by the Franchisor upon transfer or novation.

details of all unilateral variations made to franchise agreements in the preceding 3 financial years and circumstances under which a franchise agreement may be unilaterally varied by the Franchisor in future. details of any confidentiality obligations imposed on franchisees.Procedurally, Franchisors will now need to notify each franchisee whether or not they intend to renew the franchise agreement or grant a new franchise agreement at least 6 months before the agreement expires (or at least one month prior if the franchise agreement is for a term less than 6 months).  

Franchisors will also need to start keeping more comprehensive notes and records, including records of all unilateral changes made to franchise agreements from 1 July 2010.  

Franchisors should also be aware that as part of the reforms to the franchise industry, the ACCC now has new powers under which it can conduct random audits of Franchisors to check for compliance with the amended Code.