Expanded Obligations and Restrictions for Franchisors Under Upcoming Changes to the Franchising Code of Conduct
With the Federal Government proposing changes to the Franchising Code of Conduct which are likely to come into effect on 1 July 2021, it is important to understand how these might affect your franchise.
The proposed changes will seek to improve protections for franchisees, as well as improving information available to them, whilst also expanding franchisors’ obligations and restrictions.
Expanded Disclosure Obligations
Under the proposed changes, franchisors’ disclosure obligations will be expanded, including:
- Key commercial terms of franchise agreement
Franchisors will need to provide additional information to franchisees regarding essential commercial terms of the franchise agreement. Such essential terms will need to include details as to the arbitration of disputes, the rights of both parties to terminate the agreement early, and rights as to goodwill generated by the franchisee.
- Key facts sheet
Franchisors will need to provide potential franchisees with a ‘key facts sheet’, which is a standard form that will outline the most essential information from the disclosure document. The final form of this ‘key facts sheet’ will be added to the Code once the proposed changes are enacted.
- Accuracy of earnings information
A statement must be included in the disclosure document outlining whether earnings information provided is accurate to the franchisor’s knowledge, and if not, which parts are not accurate.
- Significant capital expenditure
All information regarding the amount, timing and nature of any significant capital expenditure required by the franchisor must be provided to the franchisee prior to entering into a franchise agreement.
Any information regarding any lease held by the franchisor over the franchise premises must be provided to the franchisee at least fourteen days prior to entering into a franchise agreement. Further, the franchisee will have a cooling-off period of fourteen days after receiving the terms of the lease in which they may terminate the franchise agreement.
Franchisors will need to inform the franchisee as to any benefits the franchisor receives from supplying goods or services to the franchisee.
The maximum penalty for a breach of the Code has been proposed to be doubled from 300 civil penalty units to 600 civil penalty units. Currently, this means a change from $66,000 to $133,200 payable in penalties for a breach. This change is designed to discourage bad conduct by franchisors, applicable to such provisions as the obligation to act in good faith, disclosure obligations and end of term arrangements.