New Changes Coming for Franchising Code of Conduct

1 July 2021 brings changes to franchising laws.

There are changes being implemented on 1 July 2021 to the Franchising Code of Conduct as a result of the Fairness in Franchising Report and an Exposure Draft which details the proposed changes to the Franchising Code of Conduct. These changes are aimed at creating a more appropriate balance between franchisors and franchisees.

The first of these changes are modifications to the disclosure documents provided by franchisors,  and disclosure documents may now be provided electronically. This includes introducing a Key Facts Sheet (although the structure of this has not been finalised), which will provide a summary of information in the disclosure document. Further information will also be required to be disclosed, including capital expenditure, marketing funds, rebates and earnings information. If the franchise involves subleasing or the sub-licensing of a lease, the lease and lease disclosure must be provided with the disclosure statement for the franchise, and these documents must be provided 14 days before the execution of the franchise agreement. Disclosure documents are also now required for all franchise transfers, even if a new agreement is not being entered into.

Under the proposed amendments, a franchisor cannot make a franchisee undertake significant capital expenditure prior to entering into the franchise agreement. There is an exception to this in cases where the expenditure was agreed to by the franchisee or a majority of franchisees, the expenditure was disclosed in the disclosure document prior to entering the franchise agreement, or if the costs are required in order to comply with obligations under legislation. Franchisors may also no longer require the franchisee to pay part or all of the legal costs associated with the franchise agreement unless an exact amount is specified and agreed to.

The amendments also extend the rights of franchisees in relation to termination, early exit, cooling-off periods. For termination, franchisors are now required to provide seven days’ notice as well as reasons for termination, and the franchisee may dispute the termination and engage in alternative dispute resolution processes, which now also includes arbitration, conciliation as well as mediation. Franchisees can also terminate the franchise agreement at any time in writing, for any reason. Franchisors then have 28 days to provide, in good faith, substantive written response to the termination proposal and if they do not agree, must provide reasons for refusal. In these circumstances, the franchisee may then utilise the dispute resolution processes outlined in the Code. The cooling-off period has been doubled from 7 days to 14 and is measured from the later date of entry into the agreement or payment of money under the agreement. This also now applies to transfers of a franchise.