By Alix Grice
For more than 10 years, Australian franchising laws have centred around the mandatory Franchising Code of Conduct (Franchising Code), which applies in every State and Territory across Australia. The Franchising Code covers 4 main areas:
1. whether a potential franchise is included or excluded from Franchising Code requirements;
2. the franchisor’s extensive obligations to disclose full information about the franchise to a potential franchisee;
3. cool-off rights and other important franchisee protections; and
4. the use of a dispute handling procedure that complies with the requirements in the Franchising Code.
In addition to the express obligations under the Franchising Code, potential franchisors and franchisees also need to comply with other Commonwealth, State and municipal legislation applying to the location in which they are based.
This is because Australia’s Federal system of government recognises 3 levels of law and rule making authority. As an example, signage or commercial use of premises are primarily regulated at a municipal level. Hours of operation, leasing and employment issues may be regulated at a State level, and franchise relations, intellectual property and ways of doing business are primarily regulated at the Federal level.
In addition to the Federal, State and municipal laws applying to a franchised business, franchisors and franchisees should be aware that the Franchising Code has been revised several times. The most recent amendments took effect on 1 July 2010.
The main changes include:
1. A new requirement to notify the franchisee at least 6 months prior to the end of the current term of the franchisor’s decision to renew or not renew a franchise agreement;
2. An express statement that the Franchising Code does not limit any obligation on the parties to act in good faith, and
3. An expansion of the parties’ obligations in mediation.
There are also some areas where greater disclosure to franchisees is required, including:
· Payments the franchisee will need to make (other than to the franchisor);
· Unforeseen capital expenditure not disclosed prior to entry into the franchise agreement;
· The circumstances in which the franchisor has, or may, unilaterally vary the franchise agreement;
· Confidentiality obligations that may be imposed on the franchisee; and
· Arrangements that will apply at the end of the franchise agreement – including if the franchisee will be entitled to an exit payment.
Other recent amendments included penalties of up to $1.1 million for unconscionable conduct, and powers for the Australian Competition and Consumer Commission (ACCC – Australia’s market regulator and fair trade body) to conduct random audits and ‘name and shame’ rogue franchisors. It is expected that these amendments will allow the ACCC to ‘weed out’ the few players in the industry who are perceived as not complying with the Franchising Code requirements, while allowing the vast majority of satisfied franchisors and franchisees to reach mutually acceptable contract terms.
While the franchise laws may seem complicated at first glance, a careful review of a potential franchise will soon clarify all relevant legal obligations, and give investors access to Australia’s booming franchise sector and economy with the benefit of the balanced protections set out in the Franchising Code and other Australian legislation.
This article has been written by Alix Grice, Special Counsel of Freehills.
Freehills is an international law firm based in Australia, with its Asia hub in Singapore. With around 1,000 lawyers, including more than 200 partners, Freehills is considered to be in the top tier of law firms in the Asia-Pacific region. For over 30 years, Freehills has acted as an adviser to Asian and international corporate clients and governments across the region.
For more information, please visit us at www.freehills.com or contact: Alix Grice at alix.grice@freehills.com or +65 6236 9976, or Ben Robertson at ben.robertson@freehills.com or +65 6593 5079.
