The New Age of Franchising

Amendments to the Franchising Code which commenced on 1 January, 2015 now provide additional protections and rights to franchisees and require franchisors to update disclosure documents.

Franchisors must now provide prospective franchisees with the following documents 14 days before a franchise agreement is entered into:

1. An information sheet outlining the risks and rewards of franchising;

2. A copy of the new Code;

3. A disclosure document, including details of online trading by the franchisor;

4. A copy of the proposed franchise agreement; and

5. A copy of any lease, hire purchase agreement or security agreement to be entered into.

The amendments to the Code also prohibit the inclusion of certain clauses in franchise agreements including:

1. General releases of a franchisor from liability to a franchisee;

2. Payment by a franchisee of a franchisor’s costs in settling disputes;

3. Provisions requiring a franchisee to undertake significant capital expenditure, except where agreed, disclosed or necessary to comply with legislative requirements; and

4. Restraint of trade clauses in certain limited circumstances.

There is also now an obligation imposed on parties to a franchise agreement to act in good faith. This may affect decisions made by franchisors in relation to unilateral variations of agreements, decisions not to enter into or transfer franchise agreements and termination of franchises.

For franchisors these amendments mean that disclosure documents and franchise agreements need to be reviewed and for franchisees, the amendments should result in greater information being provided both before entering into and during the term of the franchise agreement.

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