18/08/2008

The federal government has recently announced significant changes to the Franchising Code of Conduct (“the Code”) which will come into effect on 1 March 2008.  Some of the key changes are as follows:

•     The Franchisor will be required to provide its prospective franchisee with their disclosure statement, a copy of the Code and all other documents that are required to be signed at least 14 days before the date for signing of the Franchise Agreement.

•     The Franchisor will be required to provide all its prospective franchisees with the contact details of all previous franchisees (if any) over the past three (3) years that have left the system.

•     The Franchisor has ongoing disclosure obligations in that all materially relevant facts known to the Franchisor must be disclosed to the Franchisee no later than 14 days from the date that the Franchisor becomes aware of such fact.

It is important that Franchisors are aware of these changes as it will impose a more onerous disclosure regime on Franchisors to the extent that in the Franchisor’s disclosure document, Franchisors will be required to disclose amongst other things:

•     The business experience of its officers and senior management.

•     Materially relevant facts about the directors of the Franchisor such as if any court action has been taken against them.

•     Details of the history of the franchised territory.

•     Conditions that are imposed on a franchisee when selecting a site or premises.

•    The names of all businesses that provide a rebate or other types of financial assistance.

In total there are 66 changes to the Code and therefore there are number of changes to the Code that we have not covered in this article. However, it would be fair to say that these changes will impose a substantially onerous obligation on Franchisors.  

Although current disclosure documentation can be used until 30 April 2008, it is important that all Franchisors begin preparing their new form of disclosure documentation prior to the effective date of these changes.  

As is always the case, the legal environment around this issue is not black and white, so you need to be very careful when amending your disclosure documentation. For advice on this or any other business issue you may be facing, please give us or call 8296 6222