Franchising in Australia is regulated by the Franchising Code of Conduct (the Code). The Code is a mandatory industry code and forms part of the Australian Consumer Law. The Code was amended, and the updated Code came into force on 1 July 2021. Most of the changes introduced into the updated Code apply to all franchise agreements entered into on or after 1 July 2021, whilst some of the changes apply to franchise agreements entered into prior to this date. This article will explain what the Code is and the requirements for franchisors and franchisees under the code.
The Code of Conduct
The purpose of the Code is to regulate the franchising sector and set out certain requirements and standards. The Code governs how a franchisor and franchisee may conduct themselves both:
- before entering into the franchise agreement;
- during the term of the franchise agreement; and
- upon termination of the franchise agreement.
Overarching principles are prescribed in the Code, namely that all parties must act in good faith in carrying out a franchise agreement and dealing with the other party thereto. This obligation applies during the term of a franchise agreement and also during pre-agreement negotiations and disputes after termination. Importantly, parties cannot ‘contract out’ of the good faith obligation.
Disclosure Requirements
The Code also sets out strict requirements related to the disclosure of relevant information, which must be provided prior to a franchisee entering into a franchise agreement. For example, a franchisor must provide certain documents to a franchisee at least 14 days before the franchisee enters into the franchise agreement.
These documents include a:
- disclosure document;
- key facts sheet;
- information statement;
- franchise agreement; and
- lease documents (if applicable).
The purpose of providing these documents within this timeframe is to ensure that the franchisee is provided with all relevant information to make an informed decision concerning the purchase of the franchised business. Further, it provides them with a proper opportunity to obtain independent advice.
A new requirement under the updated Code is that lease documents also need to be provided in the final form as part of the disclosure process, where applicable. Furthermore, lease documents must be provided where the franchisor or an associate of the franchisor:
- lease a premises; and
- subsequently offer the premises for lease to a franchisee or allow the franchisee to occupy the premises (being a common occurrence in the world of franchising).
How Does the Code Apply to the Franchise Agreement?
It is important to note the definition of franchise agreement within the Code is quite broad. The Code applies to all franchise agreements. Therefore, parties should seek legal advice to ensure that they carefully assess any agreements that may possibly be ‘franchise agreements’. Further, in accordance with the Code, franchise agreements may be:
- written;
- oral; or
- implied.
However, the Code does regulate issues relevant to the franchise agreement and the franchise. For instance, it regulates:
- when a copy of the agreement must be provided to the franchisee;
- details of cooling-off periods; and
- the prescribed dispute resolution procedure.
The manner in which a franchise agreement may be terminated is heavily regulated by the Code. The Code sets out the situations where either a franchisor or a franchisee may end the franchise agreement. Parties to a franchise agreement may only take steps to terminate strictly in accordance with the Code, despite any contrary clauses that the individual franchise agreement may contain within.
This factsheet sets out the three key financial disclosure obligations every franchisor needs to comply with.
How Does the Code Regulate the Franchisor/Franchisee Relationship?
The Code also prescribes certain requirements regarding dealing with disputes that may arise during the franchise relationship. Under the amended Code, parties may refer franchising disputes to mediation, conciliation or arbitration for alternative dispute resolution. The purpose of these provisions is to facilitate the resolution of disputes between the parties in a timely and cost-effective manner.
Key Takeaways
The purpose of the Code is to set certain standards in relation to the franchising sector. It is important that all parties involved in the franchising sector are aware of the obligations under the Code. A failure to comply with the Code of conduct may result in civil penalties. As such, it is important that you are aware of the requirements.
For advice regarding requirements and obligations under the Franchising Code of Conduct, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1800 532 904 or visit our membership page.
Frequently Asked Questions
The Franchising Code of Conduct (the Code) is a mandatory industry code. Its purpose is to regulate the franchising sector and set out certain requirements and standards. Key changes to the code came into force on 1 July 2021.
Certain documentation must be provided prior to a franchisee 14 days before entering into a franchise agreement. The documents include a disclosure document, key facts sheet, information statement, franchise agreement and lease documents (if applicable).
We appreciate your feedback – your submission has been successfully received.
