Thomsons franchise lawyers report on amendments to Franchising Code of Conduct

Recent changes made to the Franchising Code of Conduct are now in place, report franchise lawyers from Thomsons Lawyers , and all franchise disclosure documents issued and franchise agreements entered into will need to reflect these amendments.

Two key elements under the new Code, unilateral contract variation and unforseen significant capital expenditure provisions, will however have a stepped introduction to minimise the compliance burden and provide franchisors with adequate time to collate this information.

There are a number of key changes to the Code, the franchise lawyers report.

With respect to the end of a franchise agreement, franchisors will now be required to:

• disclose to prospective franchisees what happens at the end of a franchise agreement; and
• inform franchisees six months before the end of a franchise agreement whether or not they intend to renew or enter into a new agreement (and one month before for franchise agreements that are for a term less than six months).

Franchisors will also be required to include a list of necessary and desirable behaviours to encourage parties to approach the dispute resolution process in a reconciliatory manner. This will need to include specific provisions that detail parties’ attendance at mediations, the manner of participation in mediations, and the conduct of a party during a dispute.

Franchisors will also need to ensure they disclose:

• the circumstances in which unilateral variations to franchise agreements may take place and the circumstances in which the franchisor has unilaterally varied a franchise agreement in the past three financial years
• whether franchisees, through the franchise agreement, the operations manual, or any other means, are to undertake previously undisclosed capital expenditure
• the fact that franchise agreements could be changed even when the franchisee is trying to transfer or novate a franchise; and
• whether the franchisor will attribute their costs incurred in dispute resolution to the franchisee.

Finally, franchisors need to expressly state that a copy of the franchise agreement, in the form in which it is to be executed, must be attached to a disclosure document.

Significantly, Thomsons franchise lawyers point out that the Code has also been amended to include an express statement that nothing in the Code limits common law requirements of good faith in relation to a franchise agreement to which the Code applies.

A number of minor amendments have also been made to the Code to clarify and provide consistency, and to make it easier to read and understand.

Franchisors and franchisees are now required to comply with the amended Code, as changes were effected on 1 July, 2010.

For franchisors it means that all disclosure documents issued and franchise agreements entered into after 1 July 2010 must comply with the Code amendments.

Thomsons Lawyers are available to provide legal advice on the implications of the changes to the Code, and to review current franchise documentation to ensure compliance with the Code amendments.