Franchising Code of Conduct Reform – change has arrived!

Amends have finally been made to the Franchising Code of Conduct (Code). Find out what the key changes are.

After years in the making, the Competition and Consumer (Industry Codes-Franchising) Amendment (Fairness in Franchising) Regulations 2021 was passed on 1 June 2021, which amends the Competition and Consumer (Industry Codes – Franchising) Regulation 2014, commonly known as the Franchising Code of Conduct (Code).

Despite delays, the Government has kept the 1 July 2021 commencement date for the majority of the substantive changes, leaving very little time for franchisors to get their house in order. The new dispute resolution procedure kicks in even earlier, from 2 June 2021.

 

The key substantive changes are:

  • Minimum 7 days’ notice required for termination by franchisor for serious breaches i.e. can no longer be immediate.

  • Franchisor legal costs can only be charged as a fixed amount for document preparation.

  • Specific disclosure required around the treatment of goodwill in the franchised business and earnings rights on termination or expiry.

  • Cooling off period increasing to 14 days, clock starting from later of disclosure document or lease/licence being provided.

  • Cooling off period to also apply to franchise transfers.

  • Franchisee right to request early termination of franchise agreement.

  • New dispute resolution procedure (this will override any dispute resolution procedures in franchise agreements as of 2 June 2021).

  • Significant capital expenditure required during the term of a franchise agreement must be disclosed in detail in the disclosure document.

  • Further detail on rebate information must be included in the disclosure document, namely the formula for the rebate.

  • Further detail is required on marketing fund sources and expenditure items.

  • A new ‘Key Fact Sheet’ must be provided with the disclosure document.

  • A new right of Motor Vehicle dealership franchisees to a reasonable opportunity to make a return on their investment including compensation for early termination of a franchise agreement by a franchisor.

I am a franchisor – what do I need to do?

You must update your Franchise Suite to comply with the new Code requirements as soon as possible. 

 

If you are in the process of renewing or signing a new franchise agreement then you should ensure this is completed by 30 June 2021, after this date you must have updated your documents to comply with the amendments to the Code before you sign any new or renewal franchise agreement with a franchisee.

 

After 1 July if you wish to issue disclosure to or enter into a renewal or new franchise agreement or even extend an existing franchise agreement, then you must have updated and compliant documents. 

  

We are well placed to assist on all aspects of the changes to your system required to comply with the Code changes, from drafting updates to your core documents through to educating your key persons.

 

Please do not hesitate to contact our franchising experts, Olivia Hitchens (olivia@hitchadvisory.com) or Joel Marshall (jmarshall@hitchadvisory.com) if you require any assistance.

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