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ACCC Report on Franchising Disclosure Practices

Catherine Sedgley

Assisted by Kristina Tato

Each year, the ACCC receives around four hundred complaints about franchising, and inadequate disclosure by franchisors is consistently one of the top two Franchising Code issues that is being reported. Recently, the ACCC released a Disclosure practices in food franchising report, following it, undertaking targeted compliance checks on twelve different franchisors in the food services sector, due to concerns that prospective franchisees were not being provided with adequate disclosure.  

In order for the prospective franchisee to make a reasonably informed decision, the franchisee must be provided with information regarding the franchise prior to entering into a franchise agreement, as per the Franchising Code of Conduct. The disclosure document must be provided to the prospective franchisee at least fourteen days before entering the franchise agreement.

Information that must be provided to a prospective franchisee includes:

Several issues were bought to light in the ACCC Report relating to disclosure which appear to impede on the franchisee’s ability to conduct thorough and proper due diligence before entering the franchise agreement.  

In summary, the ACCC Report found:

Key Takeaways

For franchisors, it is important to review your current Disclosure Document and your practices in relation to the preparation of your disclosure documents to ensure you are complying with your obligations under the Code. It is important that all necessary information is adequately disclosed so prospective franchisees can make a reasonably informed decision, including any supply restrictions and any key unavoidable costs such as wages, rent or inventory.

For prospective franchisees, if you are thinking of buying a franchise, don’t be afraid to speak to former franchisees. If you are not taking the time to contact former franchisees you should reconsider franchising altogether.  

Importantly, prospective franchisees should seek advice from independent professionals experienced in providing advice about franchising before entering into a franchise agreement.  Be organised and leave enough time between getting advice and signing an agreement, to consider if you should still go ahead with the franchise or if you need to negotiate changes.

If you are looking for a team of experienced franchising lawyers to whom you can turn to throughout each step of your franchising journey, please don't hesitate to get in touch with Coleman Greig's Franchising team.