2020-21 Franchise Agreement and Franchise Disclosure Document Update – The time is now!
Under the Competition and Consumer (Industry Codes-Franchising) Regulation 2014 (the 'Code'), a franchisor is required to update their Disclosure Document annually, 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 2020. Franchisors cannot recruit franchisees without an updated Disclosure Document – so it’s important that franchisors are prepared.
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 of the request being made. Therefore, it is important from a compliance as well as a risk management point of view to update 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;
- Current details of former franchisees that have left the franchise network;
- 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;
- Names of preferred suppliers or core products that must be supplied by the franchisee;
- 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 either includes 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 warranted. You should also 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; and, how the marketing fund (if applicable) will be operated and audited.
In addition, you should consider changes to your agreement to reflect any concerns and or issues your business has faced in the last 12 months or as a result of changes in legislation.
Changes to the Code – New Vehicle Dealership Agreements
On 1 June 2020, the Code was amended by the Competition and Consumer (Industry Codes-Franchising) Amendment (New Vehicle Dealership Agreements) Regulation 2020 (Amending Regulation). The changes specifically affect only 'new vehicle' dealership agreements in respect of three core areas including End of Term obligations and winding up the dealership, capital expenditure requirements and multi franchisee disputes.
The changes made are limited to dealerships for new passenger vehicles and light goods vehicles. There are many franchise agreements and motor vehicle dealership agreements to which these changes will not apply (for example, large goods vehicles, motorcycles, motorised farm machinery, motorised construction machinery, aircrafts and motorboats are excluded). However, the changes have resulted in a new compilation of the Code. Franchisors, when issuing your Franchise Agreement to prospective franchisees, please remember to forward a copy of the new compilation of the Code.
It is also an important time to review your trade mark portfolio and consider whether any other trade marks need to be registered to protect your brand or whether your business has any new product or service offerings. 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 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, compliance with the Franchising Code of Conduct, dispute resolution, property and leasing as well as employment law issues. If you require assistance, please don't hesitate to get in touch with: