The Franchising Code of Conduct (the Franchising Code) provides that certain documents must be given to a franchisee before they enter into a franchise agreement.
Franchising Code of Conduct Compliance
There are significant penalties that are payable by a franchisor if these documents are not provided.
The documents that must be given to a franchisee before a franchisee enters into a franchise agreement include:
An information statement must be given to a franchisee as soon as practicable after the prospective franchisee formally applies or expresses an interest in acquiring a franchise business (and not later than 7 days after a franchisee formally applies or expresses an interest in acquiring a franchise business) (clause 11 of the Franchising Code).
The information statement sets out some of the risks involved in franchising and a number of questions that a franchisee can ask a franchisor before the franchisee enters into a franchise agreement.
The information statement is provided on the ACCC's website and the current version can be accessed here.
An Information Statement does not need to be provided to a franchisee before the franchise enters into a franchise agreement if the franchise agreement is being renewed or extended (clause 11(4) of the Franchising Code).
After the Information Statment is given to a prospective franchisee (if required), the franchisor must give to the prospective franchisee the documents set out in sub-clause 9(1A) of the Franchising Code at least 14 days before the franchisee enters into the franchise agreement or the prospective franchisee makes a non-refundable payment.
Sub-clause 9(1A)(a) of the Franchising Code provides that a franchisor must give to a franchisee a copy of the franchise agreement in the form in which it is to be executed (signed) [What is a franchise agreement?], at least 14 days before the franchisee enters into the franchise agreement.
Sub-clause 9(3) makes it clear that the following changes can be made to the franchise agreement after it has been provided to the franchisee, without the disclosure process starting again:
Sub-clause 9(1A)(b) of the Franchising Code provides that a franchisor must give to a franchisee a copy of the disclosure document relating to the franchise at least 14 days before the franchisee enters into the franchise agreement [Understanding disclosure documents].
The disclosure document must be the current disclosure document of the franchisor.
Sub-clause 8(1) of the Franchising Code provides that a franchisor must create a disclosure document under that complies with the Franchising Code.
In addition, sub-clause 8(6) of the Franchising Code provides that the disclosure document must be updated each year within 4 months of the end of the financial year.
While sub-clause 8(7) of the Franchising Code provides that a disclosure document is not required to be updated if:
for the purposes of sub-clause 9(1A)(b), the disclosure document must be updated to reflect the position of the franchise at the end of the financial year before the year in which the copy of the disclosure document is given.
Sub-clause 9(1A)(c) of the Franchising Code provides that a franchisor must give to a franchisee a copy of the key facts sheet relating to the franchise at least 14 days before the franchisee enters into the franchise agreement. A Key Facts Sheet sets out in a condensed form some of the information that is included in the disclosure document [What is a Key Facts Sheet?]
The Key Facts Sheet must be the updated Key Facts Sheet of the franchisor.
Sub-clause 9A(2) of the Franchising Code provides that the franchisor must update the Key Facts Sheet within 4 months after the end of each financial year.
Sub-clause 9(1A)(d) of the Franchising Code provides that a franchisor must give to a franchisee a copy of the Franchising Code at least 14 days before the franchisee enters into the franchise agreement.
For a copy of the Franchising Code click here.
If the franchisee is leasing or occupying premises from the franchisor or its associate, sub-clause 9(1A)(e) of the Franchising Code requires the franchisor to give to the franchisee at least 14 days before the franchisee enters into the franchise agreement:
If the franchise agreement requires the franchisee to enter into any of the documents referred to below, sub-clause 14(2) of the Franchising Code requires the franchisor to give to the franchisee those documents at least 14 days before the franchisee enters into the franchise agreement:
The Franchising Code outlines essential documents that must be provided to a franchisee before the franchisee enters into a franchise agreement.
It is important for a franchisor to be aware of its obligations as the franchisor may be subject to significant penalties if the franchisor fails to comply with the requirements of the Franchising Code.
It is also important that the remaining Franchising Code processes for a franchisee's entry into a franchise agreement are followed.