Things to Know about Leasing in Franchises
Changes to the Franchising Code of Conduct in July 2021 have completely transformed franchisors’ disclosure obligations. One area where disclosure obligations have increased are leasing arrangements. Franchisors must provide certain documents and details to franchisees who lease premises from the franchisor or the franchisor’s associate. This applies regardless of whether or not a formal lease or sublease agreement has been entered into. As long as the franchisee occupies the franchisor’s or associate’s leased or owned premises, the disclosure obligations apply, though they differ. The disclosure obligations in respect of leasing are encapsulated in Part 3, Division 2 of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014.
Franchisee Occupying Premises Under Lease
Section 13(1) of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 outlines that the franchisor must provide the following documents to the franchisee when the franchisee leases the premises from the franchisor or the franchisor’s associate:
(a) either:
(i) a copy of the lease; or
(ii) a copy of the agreement to lease
(b) details of any incentive or financial benefit that the franchisor or associate is entitled to receive as a result of the lease or agreement to lease.
This must be provided within one month after the lease or agreement is signed by the franchisor, franchisor’s associate (if applicable), and the franchisee.
Franchisee Occupying Premises Without Lease
Section 13(3) of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 outlines that the franchisor must provide the following documents to the franchisee when the franchisee occupies the premises without a lease:
(a) both:
(i) a copy of the franchisor’s lease or agreement to lease or of the associate’s lease or agreement to lease; and
(ii) details of any incentive or financial benefit that the franchisor or associate is entitled to receive as a result of the lease or agreement to lease; or
(b) all of the following:
(i) a copy of the documents that give the franchisee the right to occupy the premises;
(ii) written details of the conditions of occupation;
(iii) details of any incentive or financial benefit that the franchisor or associate is entitled to receive as a result of the franchisee’s right to occupy the premises.
This must be provided within one month after the occupation of the premises commences, or where the franchisor, franchisor’s associate (if applicable), and franchisee sign the abovementioned documents.
Next Steps
If the lease or occupancy is not yet in force, the franchisee maintains some termination rights. This includes the ability to terminate the franchise agreement within 14 days after receiving the proposed lease or occupancy agreement. If the final lease or agreement is different to the proposed lease or agreement, the franchisee is afforded an additional 14 days to review the documents and terminate the franchise agreement if they wish. Franchisors should be aware of the possibility for this additional delay in commencement of the franchise agreement.