Imminent changes to the Franchising Code

Changes to the Franchising Code will take effect from 1 July 2010.

The government appointed an expert panel in November 2009, to look at, amongst other things, whether changes to the Franchising Code were desirable to promote greater transparency in the franchise industry, and to deal with unconscionable conduct. That panel’s report was released in March 2010, and recommended a number of changes to the Franchising Code.

In short, the main changes to the Franchising Code coming into effect from 1 July 2010 include:

1. a new requirement to notify the franchisee at least 6 months prior to the end of the current term (for terms greater than 6 months) of the franchisor’s decision to renew or not renew, or enter into a new franchise agreement (new cl 20A)
2. an express statement that the Franchising Code does not limit any obligation on the parties at law to act in good faith (new cl 23A), and
3. an expansion of what a party attending mediation must do to be taken to be trying to resolve a dispute (an inclusive list of 5 behaviours is set out) (cl 29(8)).

There are also some areas where greater disclosure is required, including:

1. payments the franchisee will need to make (other than to the franchisor / associate) that are within the franchisor’s knowledge, or control or is reasonable foreseeable by the franchisor
2. unforeseen capital expenditure not disclosed prior to entry into the franchise agreement
3. whether the franchisor will attribute its dispute resolution costs to the franchisee
4. the circumstances in which the franchisor has, or may, unilaterally vary the franchise agreement
5. confidentiality obligations that may be imposed on the franchisee, including their subject matter
6. arrangements that will apply at the end of the franchise agreement – including if the franchisee will be entitled to an exit payment, stock arrangements, and
7. whether the franchisor will amend the franchise agreement on transfer or novation.

This article was written by Amalia Stone, Senior Associate, Sydney.

More information

For information regarding possible implications for your business, contact