Under the Competition and Consumer (Industry Codes-Franchising) Regulation 2014 (the ‘Code‘), a franchisor is required to update their Disclosure Document annually. Following the announcement by the Australian Government of its proposed changes to the Code, franchisors will have until 31 October 2021 to update their Disclosure Documents and ensure they comply with the new and improved disclosure requirements.
In addition to updating their Disclosure Document, franchisors will need to familiarise themselves with the new Information Statement (https://www.accc.gov.au/publications/franchising-information-statement) and the Key Facts Sheet, which is still in its trial phase. The information statement should be provided to the prospective franchisee as soon as practicable after they formally apply, or express an interest in, acquiring a franchised business, whereas the Key Facts Sheet must be provided to a prospective franchisee or franchisee at least 14 days prior to signing a franchise agreement or making a non-refundable payment.
Franchisors cannot recruit franchisees without an updated Disclosure Document – so it’s important that franchisors are prepared.
Even if you may not be actively recruiting franchisees, there is always the possibility that either an existing franchisee or the ACCC will request a current Disclosure Document to be provided within 14 days of the request being made. Therefore, it is important from a compliance as well as a risk management point of view to update your Disclosure Document in line with the requirements of the Code.
The main areas of the Disclosure Document that require annual updating include:
- Details of existing franchisees and franchised businesses which are currently operating in Australia;
- Current details of former franchisees that have left the franchise network;
- The number of franchised businesses that were transferred, ceased to operate, were terminated by either the franchisor or franchisee, did not extend their agreement or were bought back by the franchisor;
- Updates in relation to litigation in respect of the franchise network or intellectual property under which the franchise operates;
- Details of whether rebates or other financial benefits are received from the supply of goods or services to franchisees, including the name of the rebate provider;
- Names of preferred suppliers or core products that must be supplied by the franchisee;
- Any updates on the amounts in relation to franchise establishment costs and other ongoing payments whilst the franchised business is operated by the franchisee; and,
- Most importantly, your updated disclosure document must contain updated financial records of the franchisor entity. This either includes a financial report for the last two financial years or a current independent auditor’s report prepared by a registered company auditor confirming the financial position of the franchisor company.
The proposed changes to the Code will also introduce greater and stricter pre-entry disclosure requirements in relation to:
- Supplier rebates received by a franchisor and the methods of distributing any benefits of those rebates;
- Any prior involvement by franchisors in alternative dispute resolution with its franchisees;
- Leasing of business premises by the franchisor or a related entity of the franchisor to franchisees;
- The term of the Franchise Agreement;
- What alternative dispute resolution processes are available to franchisees; and
- The transfer of any goodwill to franchisee upon termination.
This is also a good time to have Coleman Greig Lawyers review and suggest any changes to the Franchise Agreement that may be warranted and ensure the Agreement will be Code compliant. You should also consider if you wish to grant or limit the ability for it or franchisees to make online sales; what end of term arrangements you wish to impose; what dispute resolution mechanisms you wish to incorporate into the Franchise Agreement; and, how the marketing fund (if applicable) will be operated and audited.
In addition, you should consider changes to your agreement to reflect any concerns and or issues your business has faced in the last 12 months or as a result of changes in legislation.
It is also an important time to review your trade mark portfolio and consider whether any other trade marks need to be registered to protect your brand or whether your business has any new product or service offerings. You should consider whether your trade marks have been registered in the correct classes and whether there is anything else you can do to ensure that you are not infringing on someone else’s brand and that no one else is infringing on yours.
Leases & Licences
It would also be prudent for you to review your leases and licences and consider whether they are due for renewal.
We suggest you review the option clauses in your documentation to ascertain your rights and obligations. We are happy to assist you when it comes time to renew your leases and licences and in negotiating generally on your current and new sites.
Coleman Greig’s Franchising and Intellectual Property Team
At Coleman Greig we have a team of expert lawyers who focus on all aspects of franchising including franchise agreements and disclosure documents, brand protection and intellectual property, compliance with the Franchising Code of Conduct, dispute resolution, property and leasing as well as employment law issues. If you require any assistance, please do not hesitate to reach out to Coleman Greig’s Commercial Advice team, who would be more than happy to assist you.