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The New Franchising Code of Conduct is Here!

Posted on 5 November 2014

The new Franchising Code of Conduct will start on 1 January, 2015 as anticipated.

Although, the Code includes a transitional arrangement for the updating of Disclosure Documents, a franchisor may need to change its franchise agreement from 1 January, 2015 and those changes may need to be reflected in a new Disclosure Document.  As such, the transitional arrangements may not mean a franchisor is relieved from updating the Disclosure Document from 1 January, 2015.

Important to note is the requirement for franchisors to provide prospective franchisees with an Information Statement as soon as a prospective franchisee "formally applies or expresses an interest in acquiring a franchised business."

The introduction of penalties for failure to comply with the Franchising Code of Conduct should be considered by franchisor and franchise agreements, disclosure documents and franchisor policies and procedures should be immediately reviewed to help to avoid incurring penalities.  For example, a failure to provide a franchisee with a copy of a Disclosure Document within the time frame allowed may lead to a penalty of up to $51,000.

Matters which may need to be changed in a franchise agreement as a result of the new Code include but are certainly not limited to: 

1. jurisidiction for settling disputes between the parties;

2. effect of restraint of trade clauses; and

3. non-disclosure of former franchisee details.

Now is the time for Franchisors to review, redraft, update and amend franchise agreements, disclosure documents, procedures and policies and related documents.

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