With ongoing changes to the Franchising Code of Conduct, it can be challenging to stay on top of what your disclosure requirements are as a franchisor, when signing up a prospective franchisee.
Below is a simplified process of onboarding a prospective franchisee:
1. Prospective franchisee expresses an interest in the business
Once a prospective franchisee formally applies or expresses an interest in your business, franchisors are obliged under the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (the Code) to provide prospective franchisees with a copy of the Information Statement.1 The Information Statement sets out factors and steps prospective franchisees should undertake before entering into a franchise agreement, and must be provided to prospective franchisees as soon as practicable, and not later than 7 days, after a prospective franchisee requests or expresses interest in acquiring the franchise. The Information Statement was recently updated and is available on the Australian Competition & Consumer Commission (ACCC) website here.
Prospective franchisees are reminded that the Franchise Disclosure Register is another useful tool that also outlines key information about a franchise network and valuable information for prospective franchisees and their advisors to make more informed business decisions.
2. Prospective franchisee is ready to move forward with negotiations
Franchisors must provide prospective franchisees with certain documents, at least 14 days before whichever occurs first: either the franchisor and the prospective franchisee enter into a franchise agreement, or the prospective franchisee makes a non-refundable payment to the franchisor in connection with the proposed franchise agreement.
The Code sets out that Franchisors must provide prospective franchisees with a suite of franchising documents2, including:
a copy of the Franchise Agreement;
the Disclosure Document;
Key Fact Sheet;
a copy of the Franchising Code of Conduct; and
a copy of the premises lease (or if the franchisor is not in possession of the lease, a summary of the commercial terms negotiated by the franchisor).
Prospective franchisees are encouraged to use this time to review the above documents and seek professional advice before they sign the franchise agreement and pay any fees.
3. Time to review
Franchisees have a 14 day cooling-off period and may terminate a franchise agreement within 14 days after entering into the agreement.3
Further, franchisees may terminate their franchise agreement within 14 days, after receiving from the franchisor (or associate) the first document setting out the terms of the proposed lease or occupancy right; or a document setting out the terms of the proposed lease or occupancy, if the terms are not substantially identical to the terms set out in the first document (excluding changes to the terms that were requested by the franchisee).4 Given the 14 day cooling-off period, it is preferable to provide franchisees will all documents (including occupancy documents) simultaneously.
It should be noted that if a franchisee pays money to the franchisor and then changes their mind about a franchise agreement during the cooling off period, the franchisor must provide a refund of monies paid by the franchisee within 14 days of being notified by the franchisee that they no longer wish to enter into the agreement. The franchisor is only entitled to retain the monies paid by a franchisee if such a provision is included in the franchise agreement and/or the money is for a reasonable expense (as disclosed to the franchisee prior to entry into the franchise agreement).
4. Start franchising!
Once the franchisee signs the franchise agreement and the 14 day cooling off period has expired, it’s time to start franchising.
It can be difficult and time consuming to keep on-top of your franchise compliance but it is mandatory under the Code. If you need assistance simplifying your compliance, please contact our team.
1 Pursuant to clause 11 the Code.
2 The documents mentioned must be provided to prospective franchisees in accordance with clause 9 of the Code.
3 Clause 26(1) of the Code.
4 Clause 26(1B) of the Code.
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.