Under the Franchising Code of Conduct (the Code) all Australian franchisors must issue a disclosure document to a prospective franchisee, or when proposing to renew or extend the scope or term of a franchise agreement.
Disclosure Document Requirements
The disclosure document must be: signed by a director or other officer of the franchisor, updated annually within 4 months of the end of the financial year. given to a new potential franchisee or to an existing franchisee looking to renew or extend their franchise agreement at least 14 days before the franchisee signs the new franchise agreement. The disclosure document must be accompanied by a copy of the proposed franchise agreement and a copy of the Code of Conduct itself.
Disclosure Document Contents
A disclosure document will need to contain the following information to comply with code:
Franchisors details and business experiences
Franchisors must provide details of the business including: business experience, business names, its associates, and a statement that the business is solvent. Litigation Franchisors must provide all details, if there are any, of any present litigation. The relevant litigation is generally for matters including: fraud, dishonesty, unconscionability, any breach of the Trade Practices Act, and any breach of franchise.
The disclosure document must contain details of all existing franchisees. This allows a potential franchisee to contact an existing franchisee with any questions they may have regarding the franchise business. Intellectual Property Franchisors must describe and list their intellectual property, and outline the conditions which restrict the use of the intellectual property by Franchisees. Franchisors must also provide any details of a licence agreement regarding the intellectual property. Territory Franchisors must provide details of any statements relating to the exclusivity of any territorial boundaries.
Franchisors must provide Franchisees with a history of the territory or site in which it is proposed that the franchisee will operate the franchise business. This is a separate document to be included with the disclosure document. Goods and Services The disclosure document must contain information regarding the conditions which will be imposed on a franchisee regarding information about the supply of goods and services.
Fees and Payments
The disclosure document will provide details to Franchisees regarding the requirement and specifics of any franchisee payments to the franchisor. This information must include items such as marketing fees, advertising fees, or other financial obligations requiring contributions.
These include the franchisors obligations, contained in the franchise agreement, before and after the franchisee opens their business. Any obligation contained in the franchise agreement which relates to the nature of training to be provided by the Franchisor must also be outlined.
The expected obligations on Franchisees, which are contained in the franchise agreement, must also be disclosed. These obligations must include site selection, acquisition, training before and during the operation of the business, expected standards, warranties, customer service, insurance, marketing, required indemnities, records and reports, and inspections and audits.
The disclosure document must contain all details of documents related to the franchise agreement, such as a lease for premises of the franchised business, a hire purchase agreement, a security agreement, or a confidentiality agreement which the franchisee will be obligated to sign. The ACCC keeps a close watch to ensure that franchisors comply with their disclosure requirements. The ACCC has power to take legal action against any party not complying with the disclosure documents.
Read more about the Code. If you need a disclosure document prepared or if you want your current disclosure document reviewed we can help you to ensure that your documentation complies with the Code.