Providing disclosure to franchisees is not ‘set and forget’. Disclosures are required to be an evolving document which keeps franchisees updated with the franchise network.
The disclosure document provides a detailed overview of the franchise network and information which is material to making decisions and running the franchised business. The key facts sheet can be best described as a simplified version of the disclosure document.
The Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Franchising Code) sets out when both the key facts sheet and the disclosure document (Disclosures) are required to be prepared and provided to potential and existing franchisees.
The Disclosures are provided to potential franchisees before entering into the franchise agreement and must be updated and provided:
- on an annual basis
- when a franchise agreement is renewed
- by request from a franchisee and
- on termination of a franchise agreement.
The Disclosures must be provided at least 14 calendar days before entering into a franchise agreement or before any payment is made in connection with the proposed franchise agreement. The franchisor must receive confirmation from the potential franchisee that they have received, read and had a reasonable opportunity to understand the disclosure document.
Failure to comply can result in the franchisee having termination rights against the franchisor for 14 days after entering into the franchise agreement or making a payment in connection with the franchise agreement.
Updated Disclosures must be provided to the franchisees within four months of the end of the financial year. If a 1 July to 30 June financial year is used, the Disclosures would need to be provided four months after 30 June, being the end of October. Exemptions may apply where the franchisor does not (or does not intend to) enter into a franchise agreement or enters into only one franchise agreement in the financial year.
Within a 12-month period, the franchisee can make one request to be provided with updated Disclosures. The franchisor must provide the Disclosures within 14 days. If the franchisor is not required to provide the Disclosures the time frame is extended to two months.
Renewal or Extension
In addition to the above, a franchisor is required to provide updated Disclosures at least 14 days before a franchise agreement is either renewed or has the term or scope extended. Unless requested by the franchisee, there is no requirement to provide the franchisee with Disclosures where notice is given to extend the term of a franchise agreement. However, the notice must include a statement which notifies the franchisee of their right to request a disclosure document. Any request is subject to the request limit of one request per 12-month period.
Key takeaway for franchisors
The key facts sheet and the disclosure document should be regularly updated. By keeping these documents up to date, the risk of providing inaccurate disclosures can be reduced and decrease the compliance burden on franchisors.
Cowell Clarke can assist franchisors through a range of services, including our Franchise Portal.
Please contact us if you would like assistance or more information.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.