Do you own a franchise?
Are you thinking about buying one to start your own business? I have great news for you!
As you might have heard, a new law to protect franchisees came into force as of January 1, 2015. Let’s see why this is such great news.
The changes were made to the Franchise Code Of Conduct which is the basic law ruling franchise agreements and relationships. It is important because even if a clause in a franchise contract is unfair to a franchisee, he or she is still protected if that clause is regulated by the code.
The new Franchise Code Of Conduct applies to conduct from January 1, 2015 (meaning anything that happened before is not covered by the new code). However, if there was a prior agreement that needs to be renewed after this date, the new code applies to it.
As the changes to the code are significant, I would advise every franchisor, franchisee or future franchise owner to read it carefully or have their lawyer’s opinion on any action that needs to be taken.
What has changed?
- good faith in their franchise agreement
- There are serious financial penalties of up to up to $51,000 for breaches of the Code
- Franchisor needs to provide additional documentation to franchisees - a fact sheet outlining the risks and rewards of franchising
- Franchisors will be required to provide more transparent information on how marketing money is spent and will need to set up a separate fund for marketing and advertising
- As online sales grow, additional disclosure regarding online sales will be asked from the franchisor
- Bans franchisors from imposing significant capital expenditure except in limited cases
Franchisors also will need to consult a lawyer if they want to have any new franchisees after January 1, 2015 as their franchisor agreement will need to be significantly changed. There will also be slight difference in the legal process of selling a franchise.
The most significant difference however, is franchisors will need to provide more detailed disclosure documents and also update the franchisees with ongoing documentation.
In addition, the prohibition to international franchises has been lifted so that new franchise forms will be entering the Australian legal scene. It will be interesting to see how relationships develop from now on.
The law protects franchisees more than it does for franchisors. It might seem that franchisors have the short stick, but in fact the code has been changed to protect franchisees that deal with high requirements and a lot of limitations from franchisors
We hope that this will make businesses more transparent and easier (and cheaper) to manage from a legal perspective.