The New Code applies to all franchise agreements entered into on or after 1 January, 2015.
Many of the obligations of franchisors under the "Old Code" remain however, they have in many instances been extended or added to.
The changes are so wide that this Code review has resulted in a new Code and not just a revised or "re-jigged" Code.
Below is a summary of some (but not all) of the changes a franchisor should be aware of:
1. when a potential franchisee makes a serious enquiry the franchisor is required to give that franchisee an "Information Statement" in the form required under the New Code which specifies the font size and that it must not be longer than 2 pages;
2. the disclosure document is quite different.
2.1 You may recall that under the Old Code the franchisor was required to disclose a reference to clause numbers in the franchise agreement, that requirement has now been removed which is a welcome change;
2.2 However, in many cases the disclosure requirements have been extended, for example, in the past we needed only to name associates of the franchisor. Now, we need to disclose their relationship to the franchise system;
2.3 the requirements to disclose the arrangements which will occur at the end of the term have now been extended. This is aimed at highlighting to franchisees that, in some cases, once a franchise agreement comes to an end it will just end and the franchisee may not be entitled to any compensation;
2.4 a completely new disclosure requirement relates to online sales. The franchisor must now disclose if and how online sales may impact upon the franchisee's business. This was introduced to meet a growing concern about franchisor encroachment into the territories of the franchisees via online means. it will also disclose to franchisees if other franchisees may encroach into territories via online sales.
3. Penalties have been introduced in the event the franchisor fails to comply with some of the obligations outlined under the New Code. We aren't talking nominal penalties here either, we are talking up to $51,000 for each infringement! This means that franchisors really need to ensure they are compliant with the new requirements and that their staff are well aware of the requirements.
4. If a franchisee is to give something to the franchisor in writing under the New Code, then the franchisor must keep that thing or documents for at least 6 years. This may mean that franchisors need to revisit their procedures and in particular their record keeping and file maintenance procedures.
Franchisors need to review their franchise agreements, redraft their disclosure documents, train their staff and review their procedures to ensure compliance and to help to avoid incurring penalties.
The Franchise & Business Lawyers can help you comply with your obligations under the Code. If you have any questions please email us here.
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