On 1 June 2021 it was announced that Australia’s Franchising Code of Conduct (‘the Code’) has been amended. While many requirements imposed by these amendments took effect from 1 July 2021, most changes to disclosure requirements take effect from 1 November 2021. Franchisors need to ensure that all disclosure documents provided on or after 1 November 2021 are compliant with the Code.
What are the changes?
The updated template for disclosure documents is included in annexure 1 of the Code.
The additional information franchisors now need to disclose to franchisees incudes:
- Dispute resolution – The percentage of franchisees that participated in an alternative dispute resolution process or arbitration in the previous year.\\\\
- Rebates – More detail around rebates and other financial benefits that franchisors receive from suppliers. These details should include:
- the nature of the rebate,
- the total amount of the rebates; and
- whether the benefit is shared directly or indirectly with the franchisee.
- Leases – Whether the franchisor or an associate has an interest in a lease that will be used for the operation for the franchised business.
- If a franchisee occupies premises without a lease, but under a right granted by a franchisor or associate of the franchisor, the franchisor must also disclose:
- A copy of the franchisor’s (or associate’s) lease of agreement to lease;
- 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;
- 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;
- A copy of the documents that give the franchisee the right to occupy the premises; and
- Written details of the conditions of the occupation.
- Early Termination – The ways in which the franchisee and franchisor can terminate the agreement early.
- Good will – Franchisee’s rights to any goodwill they generate.
- Restraints – Any restraint of trade obligations.
- Earnings – From 1 July 2021 franchisor’s have been required to give earnings information with or before the other pre-entry documentation. From 1 November 2021, if earnings information is provided, it must be in either:
- the disclosure document; or
- a separate document attached to the disclosure document.
- Earnings information must, to the best of the franchisor’s knowledge, be accurate. If there is any information that the franchisor knows is not accurate, they must specify which parts are inaccurate.
- Capital Expenditure – If the franchisor discloses capital expenditure in a disclosure document, they must now include as much information as possible about that expenditure. This applies to disclosure documents that a franchisor must give before they enter into, renew, or extend an agreement.
The franchisor must explain the
- reason for the expenditure;
- amount, timing and nature of the expenditure;
- anticipated outcomes and benefits of the expenditure; and
- expected risks associated with the expenditure.
What next?
This article has provided a summary of the changes to disclosure requirements under the code. It is important to note that there are a number of detailed amendments, some relating to small changes to wording and others relating to entirely new sections of the required disclosure documents. It is therefore important to carefully read through the amendments in order to ensure your disclosure documents are compliant.
Please contact Ian Miller or Shannon Walsh on 9804 5700 to discuss any questions or to look at updating your franchise documents.
Article prepared by: Shannon Walsh, Graduate
