Overview of the Changes to the Franchising Code of Conduct
Amendments to the Franchising Code of Conduct have now been finalised, and will take effect from 1 July 2021. They will continue, as other changes to the Code have in recent years, to redistribute the power imbalance between franchisors and franchisees. The Code will apply to new, renewing or extending Franchising Agreements after 1 July 2021. Let’s look more closely at the main changes that will take effect.
From 2 June 2021, the Australian Small Business and Family Enterprise Ombudsman will oversee the Alternative Dispute Resolution (ADR) process. Each party must attend the ADR process and will be equally responsible for the costs, unless agreed otherwise, including
- ADR practitioner fees
- Costs of room hire
- Additional costs, including reports.
Disclosure Before Entering a Franchise
The franchisor must provide a prospective franchisee with certain documents 14 days before entering into an agreement or before the franchisee makes a non-refundable payment in relation to the proposed franchise agreement.
These documents include:
- Franchise agreement
- Disclosure document
- Key facts sheet
- Copy of the Code.
- If applicable, a copy of the lease or a summary of the commercial terms negotiated by the franchisor.
If a franchisor fails to provide the franchisee with the following documents, they may be liable for a 300 penalty unit fine. Furthermore, they must update the key facts sheet within four months after each financial year otherwise they will be liable for another 300 penalty unit fine.
Extended Cooling-off Period
Under the new Code, the cooling-off period has extended from 7 to 14 calendar days after entering into the agreement. However, it will not impact renewals or extensions of franchise agreements. The cooling-off period also applies for transfers; however separate rules may apply.
- New vehicle dealership agreements. Notably, the franchisor is required to pay compensation for early termination in cases where the franchisor changes their business practices / withdraws from Australia. A franchise agreement cannot be entered into unless there is a provision addressing the above.
- Marketing Fund: If a franchisee is required by the franchise agreement to pay monies to a marketing fund controlled by the franchisor, then the fund administrator is required to prepare and provide the franchisee with annual financial statements and audit reports. The fund administrator is also required to open and operate a separate bank account for the payments to the deposited in.
- Changes to terminations, capital expenditure requirements and prohibition of passing certain legal costs have also been made.