Under the Franchising Code of Conduct (the Code) all Australian franchisors must issue a disclosure document in a prescriptive form to a prospective franchisee, or when proposing to renew or extend the scope or term of a franchise agreement.
Disclosure Document Requirements
The disclosure document must be:
- signed by a director or other officer of the franchisor,
- updated annually within 4 months of the end of the financial year,
- given to a new potential franchisee or to an existing franchisee looking to renew or extend their franchise agreement at least 14 days before the franchisee signs the new franchise agreement.
The disclosure document must be accompanied by a copy of the proposed franchise agreement and a copy of the Franchising Code of Conduct itself.
Disclosure Document Contents
A disclosure document will need to contain the following information to comply with the Code.
Franchisor’s details and business experiences
Franchisors must provide details of the business including business experience, business names, business associates and a statement that the business is solvent.
The Franchisor must provide all details, if there are any, of any present litigation and any litigation which was commenced in the past. The relevant litigation is generally for matters including fraud, dishonesty and any breach of franchise.
The disclosure document must contain details of all existing franchisees, this allows a potential franchisee to contact the existing franchisee with any questions they may have regarding the franchise business.
The franchisor must describe and list its intellectual property and outline the conditions which restrict the use of the intellectual property by Franchisees. The franchisor also must provide any details of a licence agreement regarding the intellectual property.
The franchisor must provide details of any statements relating to the exclusivity of any territorial boundaries.
The franchisor must provide you with a history of the territory or site in which it is proposed that you operate your business. The history is to be provided in a separate document to be included with the disclosure document.
Goods and Services
The disclosure document must contain information regarding the conditions which will be imposed on a franchisee regarding information about the supply of goods and services.
Fees and Payments
The disclosure document will provide details to you regarding the requirement and specifics of any franchisee payments to the franchisor. This information must include items such as marketing fees, advertising fees or other financial obligations requiring contributions.
Obligations of the Franchisor
These include the franchisor’s obligations, contained in the franchise agreement, before and after the franchisee opens their business. Any obligation contained in the franchise agreement which relates to the nature of training to be provided by the Franchisor must also be outlined.
Obligations of the Franchisee
The expected obligations on the franchisee, which are contained in the franchise agreement, must also be disclosed. These obligations must include site selection, acquisition, training before and during the operation of the business, expected standards, warranties, customer service, insurance, marketing, required indemnities, records and reports and inspections and audits.
The disclosure document must contain all details of documents related to the franchise agreement, such as a lease for premises of the franchised business, a hire purchase agreement, a security agreement or a confidentiality agreement which you will be obligated to sign.
Contact us if you need a disclosure document updated, reviewed or prepared.