Franchise Legal Update Alert

O*NO! As of 1 July 2021 changes to the Franchising Code kicked in effecting Franchise Agreements entered into, renewed or extended on or after 1 July 2021. This means that if your business is through a franchise, the changes that have come in will likely apply to you in the future. Some changes, however, have a timeframe attached including:

• Most of the dispute resolution changes for dispute notified on or after 2 June 2021; and

• Most of the changes that require amendments to the disclosure document from a franchisor will apply from 1 November 2021.   

There is also a new key facts sheet and an updated information statement which are requirements to be provided to prospective franchisees.

Why do I need to know about the Franchising Code?

Unless you’re particularly enthusiastic about legal literature – or a glutton for punishment – the Franchising Code can be pretty dry reading. You need to know about it because if your business is operated through a franchise, the Franchising Code will apply to you. In a nutshell it tells you:

• What you need to disclose and what others need to disclose to you

• What is required when entering into a franchise agreement

• What to do about dispute resolution

• What cooling off periods apply

• What a “good faith” transaction looks like

Any breaches of the Franchising Code could land you in hot water with the Australian Competition and Consumer Commission (ACCC) who can investigate and issue an infringement notice or ask a Court to issue you with a penalty. Basically, it’s best practice to know what you can and can’t do with your franchise.

Changes to disclosure requirements

If you are thinking about entering a franchise, or if you are looking at getting new franchisees on board, listen up.

From 1 July 2021 franchisors are required to give prospective franchisees the new version of the ACCC Information Statement which can be found here. This must be given as soon as possible, before any other documents are provided, to anyone who is interested or has applied to be buy a franchise. Franchisors are now also required to give a brand new key facts sheet which must be filled out and given to prospective franchisees with other disclosure documents already required by the Franchising Code. This key facts sheets can be found here and must be given at least 14 days before entering into a franchise agreement or paying non-refundable money.

The changes to disclosure aim to provide prospective franchisees with more information and now include providing information on:-

• the percentage of franchisees that participated in an alternative dispute resolution process or arbitration in the previous financial year;

• rebates and other financial benefits that franchisors receive from suppliers;

• details of capital expenditure disclosed;

• whether the franchisor or an associate has an interest in a lease that will be used for the operation of the franchised business;

• whether the franchise agreement provides for the arbitration of disputes using the Code’s arbitration provisions;

• the ways in which the franchisee and the franchisor can terminate the agreement early;

• franchisees’ rights to any goodwill they generated; and

• any restraint of trade obligations.

What are the changes to dispute resolution?

The changes have brought in more alternative dispute resolution options – that is, ways of sorting out your dispute without going to court. Multiple franchisees with a similar dispute can now resolve their dispute together. Parties can agree to go to voluntary arbitration or conciliation.

What are the other main changes I need to know about?

Other changes to the Franchising Code include:

• Earnings information must not be provided with the disclosure document;

• the cooling-off period has now been extended to 14 days;

• new cooling-off rights for transfers have been introduced;

• particular grounds now require 7 days’ notice for termination;

• breach of payment obligations for marketing funds now incur civil penalties;

• certain legal costs cannot be passed by franchisors; and

• an introduction of requirements for new vehicle dealerships.

If you are a real estate agent under a franchise, or thinking about franchising, most of these changes will affect you. Further, detailed information about the above changes are available on the ACCC Website or contact us at O*NO Legal at [email protected] for any assistance you may need with entering into a franchise agreement or inviting prospective franchisees to your franchise.

Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.