Changes to the Franchising Code Now Apply

K&L Gates LLP

K&L Gates LLP

On 1 June 2021, the Australian Government released amendments to the Franchising Code of Conduct and a number of these have already begun to apply. A summary of when various key changes take effect is set out below. 

From 2 June 2021: amendments have taken effect regarding dispute resolution which apply to all disputes notified on or after 2 June 2021 (even if the agreement was entered into before that date). The changes mean there are additional dispute resolution options available (such as voluntary arbitration, conciliation and multi-party alternative dispute resolution) and "rapid" appointment of an alternative dispute resolution (ADR) practitioner/arbitrator is contemplated for certain disputes. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) will now oversee all dispute resolution advisor functions.

From 1 July 2021: the process that applies in granting a franchise will change as follows:

  • The form of the Information Statement that must be provided to prospective franchisees will change (it must be given before the other required disclosure documents are provided)
  • A new "Key Facts Sheet" must also be given to franchisees (the form of this is yet to be published)
  • Additional information regarding leasing and premises must be given where relevant
  • A longer cooling-off period of 14 days applies and the cooling-off period will only begin on franchisees receiving necessary documentation including, where relevant, the terms of leases or occupancy rights
  • Documents need to be provided in formats requested by the franchisee (electronic and/or hard copy)
  • Capital expenditure requirements must be discussed and appropriately disclosed (unless certain exceptions apply).

From 1 July 2021: franchise agreements entered into, renewed or extended will need to be amended to reflect Franchising Code changes which include:

  • Seven days' notice to be given by franchisors for terminations in special circumstances, with a new prohibition on terminating the agreement for 28 days where there is a dispute 
  • Franchisors being prohibited from passing on certain legal costs
  • New cooling off rights (including for transfers) and the longer cooling off period 
  • Retrospective unilateral variations being prohibited without a franchisee's consent
  • Further narrowing of the circumstances in which a restraint can be enforced.

From 1 November 2021: updated disclosure documents must reflect new requirements which include:

  • Additional information that must be disclosed regarding mediations/conciliations/arbitrations that have occurred, leases/property, goodwill, the term, early termination arrangements and capital expenditure 
  • Additional information that is required regarding rebates (including how these are calculated and whether and how these are shared with franchisees)
  • Earnings information, if provided, must be given with the disclosure document. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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