New Franchising Code of Conduct

From 1 January 2015, the current Franchising Code of Conduct will be repealed and replaced with a new Code. This will apply to all franchise systems operating in Australia.

REIA made submissions on the proposed contents of the Code and was successful in ensuring the exclusion of provisions:

  • providing a franchisee with a right to terminate a franchise agreement if the franchisor fails and a buyer is not found within a reasonable time; and
  • deeming a franchisee to be an unsecured creditor through allowing the creditor to claim as a debt an unexpired portion of a franchise agreement in the event of a franchisor failure

However, other substantial changes were made, including:

  • alterations to the prior disclosure process;
  • substantial changes to the form of the disclosure document;,
  • new disclosure obligations in relation to issues such as on-line sales, end of term arrangements and master franchise arrangements;
  • new requirements in relation to the operation of marketing funds, including a requirement to establish a separate bank account into which all contributions are to be made as well as a requirement for franchisors to contribute to the fund in respect of any corporate stores or outlets they operate, on the same basis as franchisees – this particular requirement may have particular impact in the way some franchises in this sector may operate;
  • strengthened requirements in relation to franchisee capital expenditure during the term of the franchise; and
  • codification of the common law duty of good faith, such that franchisors and franchisees must act in good faith in relation to any matter arising under or relating to the franchise agreement and the Code

The new code can be found at http://www.comlaw.gov.au/Details/F2014L01472

The new Code will apply to all franchise agreements executed after 1 October 1998, not just those executed on or after 1 January 2015. The Australian Competition and Consumer Commission is developing materials to help franchisors, franchisees and prospective franchisees understand their rights and obligations under the new code, including:

  • guidance on what the duty of good faith is likely to entail; and
  • guidance on how the ACCC will enforce compliance with the code

REIA believes it is timely for all franchises to review their agreements. We will update our members of any new developments as they arise.