Franchise Agreement and Disclosure Update 2019-20
Franchisors cannot recruit franchisees without an updated Disclosure Document, so it’s important that franchisors are aware of this update. Under the Franchising Code of Conduct (the 'Code'), a franchisor is required to update their Disclosure Document annually. This must be updated within 4 months following the end of the financial year. If your financial year ends 30 June, the Disclosure Document for your franchise network needs to be updated on or before 31 October 2019.
Even if you may not be actively recruiting franchisees, there is always the possibility that either an existing franchisee or the ACCC will request a current Disclosure Document to be provided within 14 days. Therefore, it is important from a compliance and risk management point of view that you have updated your Disclosure Document in line with the requirements of the Code.
The main areas of the Disclosure Document that require annual updating include:
- Details of existing franchisees and franchised businesses which are currently operating in Australia;
- The number of franchised businesses that were transferred, ceased to operate, were terminated by either the franchisor or franchisee, did not extend their agreement or were bought back by the franchisor;
- Updates in relation to litigation in respect of the franchise network or intellectual property under which the franchise operates;
- Details of whether rebates or other financial benefits are received from the supply of goods or services to franchisees, including the name of the rebate provider;
- Any updates on the amounts in relation to franchise establishment costs and other ongoing payments whilst the franchised business is operated by the franchisee; and
- Most importantly, your updated disclosure document must contain updated financial records of the franchisor entity. This includes either a financial report for the last two financial years or a current independent auditors report, prepared by a registered company auditor confirming the financial position of the franchisor company.
This is also a good time to have Coleman Greig Lawyers review and suggest any changes to the Franchise Agreement that may be needed. You should consider if you wish to grant or limit the ability for it or franchisees to make online sales; what end of term arrangements you wish to impose; what dispute resolution mechanisms you wish to incorporate into the Franchise Agreement; how the marketing fund (if applicable) will be operated and audited.
You should also consider making changes to your agreement to reflect any concerns and or issues your business has faced in the last 12 months, as well as the legislative changes proposed in relation to the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017.
It is also an important time to review your registered trade marks and consider whether any other trade marks need to be registered to protect your brand. You should consider whether your trade marks have been registered in the correct classes and whether there is anything else you can do to ensure that you are not infringing on someone else's brand and that no one else’s brand is infringing on yours.
Leases & Licences
It would also be prudent for you to review your leases and licences and consider whether they are due for renewal.
We suggest you review the option clauses in your documentation to ascertain your rights and obligations. We are happy to assist you when it comes time to renew your leases and licences and in negotiating generally on your current and new sites.
Coleman Greig's Franchising and Intellectual Property Team
At Coleman Greig we have a team of expert lawyers who focus on all aspects of franchising including franchise agreements and disclosure documents, brand protection and intellectual property and compliance with the Franchising Code of Conduct, If you require assistance, don’t hesitate to get in touch with a lawyer in Coleman Greig’s Intellectual Property team: