Is your franchise ready for the new unfair contract regime?

Peter Stewart

Many of you will have heard about the impending new unfair contract regime which will be implemented later this year, from 12 November.

The law aims to curb the potential for small businesses to be disadvantaged by unfair contract terms which are enforced in common business agreements. 

Due to be implemented from 12 November, the law will apply to any standard form contract entered into or renewed on or after this date. If changes are made to a contract on or after this date, the law will also apply to the varied terms.

Is your franchise agreement a standard form contract?

The big question if you’re in the franchising sector is whether or not your franchising agreement is considered to be a standard contract form.

Defined as a contract that has been prepared by one party to the contract with no room for the other to negotiate the terms, a standard form contract can be a software license, equipment rental agreement, finance contract or supply and distribution agreements. It can also be a confidentiality agreement, trading terms and yes, a franchise agreement.

The new law affects any agreement where one of the parties is considered a ‘small business’ – that is, a business employing fewer than 20 employees. Most franchisors won’t fall under this definition however most franchisees will. On this point, the ACCC has indicated that the balance of power between franchisors and franchisees may become more equitable following the change.

Franchisors who adopt a more collaborative approach in developing and finalising their contracts are likely to be less affected. Conversely, if your business model favours a more rigid approach with little or no room for discussion from the other party, you may find it difficult to argue that your franchise agreement isn’t a standard form contract.

Exempt terms

In addition to those terms outlined as being exempt for all small businesses under the new law, you should take note of terms found specifically in franchising agreements that will be exempt from the new law such as those that deal with payment of initial fees, ongoing franchise fees, training fees and marketing fees.

Terms requiring further payments as a result of happening or not happening throughout the term – early termination fees, late payment fees, transfer fees, renewal fees, liquidated damages and interest – are among those unlikely to be exempt.

All businesses should review and seek advice on any standard term contracts which may be used, in order to consider if there is any risk that various terms could be declared void for being unfair. 

Attend our Novotel Norwest breakfast briefing to learn more

Ensure your franchise is prepared and that your standard form contracts are compliant ahead of the new unfair contract regime. Book now to join Coleman Greig Lawyers on Thursday, 11 August at the Novotel in Norwest, for a comprehensive briefing on how the new legislative landscape will affect your business.

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