Business & Commercial Law - Franchising Law - Franchising Code of Conduct

Franchising in Australia is governed by the Franchising Code of Conduct (“FCC”). This piece of legislation was design to protect potential franchisees from unscrupulous franchisors and requires the franchisor to disclose certain information to the franchisee so as to:

1. give to a prospective franchisee, or a franchisee proposing to enter into, renew or extend a franchise agreement, information from the franchisor to help the franchisee to make a reasonably informed decision about the franchise; and
2. give a franchisee current information from the franchisor that is material to the running of the franchised business.

Disclosure Document

The FCC provides that prior to entering into a franchising agreement the franchisor must create a disclosure document for the franchise in accordance with the FCC. There are two forms of disclosure documents, one for franchises turning over less than $50,000.00 per annum and one for franchises turning over more than $50,000.00. The main difference being the level of disclosure required to be given.

A disclosure document should follow the format as provided for in the FCC. The front page will contain details of the franchisor along with the required warnings and provision of a 7 day cooling off period for new agreements.

Important aspects to consider include:

1. Establishment costs and ongoing fees charged by the franchisor;
2. The territory in which the franchisee may operate;
3. What goods the franchisee may supply;
4. What goods the franchisee is obligated to purchase from the franchisor;
5. Whether there are any existing leases;
6. Obligations on franchisee such as training;
7. Earnings information of the franchise

Franchising Agreement

A franchising agreement will be in the form of a contract and some of its terms and conditions will reflect the disclosure document. Whereas the disclosure document relates more to the onus

placed on franchisors to disclose certain information, generally the terms of the franchising agreement relate more to the relationship between the franchisor and franchisee.

Important aspects to consider include:

1. Any fit-out costs;
2. Conduct of the business and franchisee;
3. Obligations to maintain books and records;
4. Insurance;
5. Guarantees;
6. Future sale of the franchise;
7. Termination;
8. Restraint of trade;

What you should receive from the Franchisor

Prior to signing any documents, the franchisor is required to give to the franchisee a copy of:

1. Franchise agreement in final form;
2. Disclosure document;
3. Franchising Code of Conduct;
4. Lease (if applicable)

How can we help?

Franchising can be a difficult area if you do not understand what you are doing. We can assist with providing advice on the terms of the agreement and advise you on whether the franchisor has met its obligations under the FCC.

If you are a franchisor and wish to franchise your business, we can help prepare your franchise agreement and assist you with meeting your obligations under the FCC.