Franchisees reminded Code changes effective 1 July
Changes to the Franchising Code of Conduct designed to provide incoming franchisees with better disclosure will become effective on 1 July 2010. Any franchisee that signs a franchise agreement on or after 1 July must receive a disclosure document that complies with the amended Code.
For instance franchisees will see in the disclosure document a caution that a franchised business or franchisor can fail and this could have consequences for the franchisee.
The disclosure document must list ongoing or one-off payments the franchisor is aware the franchisee will be required to make.
Franchisors must also advise the franchisee there may be unforeseen significant capital expenditure during the term of the agreement.
Any unilateral variations to a franchise agreement in the past must be disclosed to the franchisee who is also to be made aware of whether or not there is to be a confidentiality obligation.
Franchisors must detail the process of ending a franchise agreement, including options to renew or extend the agreement, enter a new agreement, whether there will be an exit payment and how that will be determined.
In any agreement of six months or longer, the franchisor must notify the franchisee at least six months before the end of term of their plan to renew or not renew the agreement.
Details about stock and assets must be provided too and if the prospective franchisee has the right to sell the business at the end of the franchise agreement, details about the process and assessment of market value need to be outlined in the disclosure document.
There is revised legislation on mediation including guidelines on appropriate behaviour during disputes and mediation, and a new definition of mediation costs. Whether or not the franchisor intends to recoup its costs in a dispute from the franchisee concerned also has to be outlined in the disclosure document.
For more details of the Code revisions click here to visit the FCA site.