For the past 20 months the Federal Government has been contemplating changes to be made to the Franchising Code of Conduct. Whilst we await the final legislation to be released, our best guess as to how the new legislation will read is as follows:

  • The new Code will come into effect from the 1st of January 2015 and will apply immediately to all franchise agreements;
  • The provisions of the Code (notably good faith) and new pecuniary penalties apply to conduct as and from 1 January 2015;
  • Franchisors will be required to provide prospective franchisees with a new Information Statement which explains franchising and outlines some of the potential risks;
  • There will be a new form disclosure document for franchisors and will exclude provisions such as clause cross-referencing requirements. However there will be additional disclosure in relation to:
    • e-commerce and online sale arrangements;
    • franchisee capital expenditure requirements; and arrangements that apply at end of term, and more
    • explicit disclosure if a franchisee has no right to a renewal or extension of the agreement or to enter into a new agreement at end of term;
  • Obligations relating to marketing funds particularly the requirement to have all funds paid into a separate bank account and an explanation of the expenses for which the marketing fund will be used for will need to included in agreements;
  • A new codification of the common law duty of good faith will be included;
  • There are likely to be new provisions concerning disputes, including prohibition on dispute resolution occurring outside the state where the franchised business is located and a prohibition on the franchisor passing on its dispute resolution costs;

Whilst we suspect that the Code will include transitional provisions that may allow franchisors to defer updating the disclosure document following the implementation of the new Code in January until after 30 June 2015, or in effect, 31 October 2015, this is yet to be confirmed.

Nonetheless if a franchisor decides to not change its disclosure document the terms of the franchise agreement will be affected by the new Code as of and from 1 January 2015. Changes to franchise agreements may be necessary to address issues such as restraint of trade, compensation (if any) at end of term and unfair contracts legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.