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Franchising Calls for Full and Frank Disclosure |
The mandatory franchising code of conduct, which has been in operation for just over a year, imposes comprehensive disclosure requirements on franchisors who will be in breach of the Trade Practices Act if they don’t comply. The benefits are that franchisees can make better decisions before entering or renewing a franchising agreement, and it may prevent disputes further down the track. |
Where an agreement is covered by the Code, a franchisor will need to prepare a disclosure document to be updated annually. The franchisor must give a copy of the Code and the disclosure document to the prospective franchisee at least 14 days before the agreement is entered into. The Code also stipulates that where a franchisor is granting a master franchise, the franchisor must give a disclosure document to the prospective subfranchisor. Where the subfranchisor proposes to grant a sub-franchise, the franchisor and subfranchisor must provide a disclosure document each or give a joint disclosure document. |
The specifications for the disclosure document are to be found in an annexure to the Code. The type of business details a franchisor is required to provide include the franchisor’s name, company details, a description of the business operated under the franchise and the names, positions and qualifications of the franchisor’s management staff and all associates of the franchisor. |
A franchisor must disclose their involvement in past and present litigation proceedings.The document also needs to specify intellectual property, the extent of the franchise territory, the supply of goods or services to franchisees and by franchisees, and marketing and other cooperative arrangements. |
Both parties should bear in mind that a willingness to negotiate in good faith are factors that a Court can consider when looking at allegations of unconscionable commercial conduct under the Trade Practices Act. |
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