Based in Sydney, Raja is a law student enrolled in a Bachelor of Laws and Bachelor of Communications (Writing and Publishing) at the University of Technology Sydney. He is passionate about transferring knowledge in relation to businesses, legal advice and marketing direction. Raja has experience working in immigration law and is driven by the writing, editing and publishing process of content.
Introduction
Whether you’re planning to become a franchisee or currently operate a franchise, understanding franchisee laws in Australia is essential to protecting your investment and ensuring compliance. This comprehensive guide outlines the legal requirements of entering into a franchise agreement and your rights under the franchisee code of conduct.
Table of Contents
Understanding the Franchisee Code of Conduct
The franchisee code of conduct, formally known as the Franchising Code of Conduct, is the cornerstone of franchisee laws in Australia. This mandatory industry code regulates the conduct of franchising participants and sets out the rights and obligations for both franchisors and franchisees. New franchisee laws continue to evolve to provide stronger protections for franchisees, making it crucial to stay informed about your legal rights before signing any franchisee agreements.
What Are the Legal Requirements of Entering Into a Franchise Agreement?
Understanding what are the legal requirements of entering into a franchise agreement is fundamental to making an informed decision. The franchisee code of conduct mandates specific disclosure and documentation requirements that franchisors must meet before you can legally enter into franchisee agreements.
Mandatory Disclosure Documents
Under franchisee agreements and new franchisee laws, franchisors must provide you with three critical documents:
Information Statement – This document helps you understand the franchising model. You’ll receive this statement once you’ve entered into an agreement, and it outlines both the risks and rewards of franchising. This ensures you’re making an informed decision about your business investment.
Disclosure Document – Perhaps the most important document in the franchising process, the disclosure document must be provided in the prescribed format as mandated by franchisee laws in Australia. This comprehensive document contains crucial information about the franchise system, all associated costs, the franchisor’s background, financial performance representations, and your obligations as a franchisee.
Franchise Agreement – The franchisor must provide you with the franchise agreement at least 14 days before you either enter into the agreement or make any non-refundable payment. This mandatory waiting period is a critical protection under the franchisee code of conduct, giving you time to review the terms, seek legal advice, and make an informed decision without pressure.
Additional Agreement Copies
The legal requirements of entering into a franchise agreement extend beyond the main documents. If you’re leasing premises from the franchisor, they must provide a signed copy of the lease within one month of signing. You’re also entitled to receive copies of all related agreements, including intellectual property agreements, security agreements such as guarantees or mortgages, confidentiality agreements, and any restraint of trade agreements.
Your Rights as a Franchisee Under Australian Law
Franchisee laws in Australia provide extensive protections designed to create a fair and transparent franchising environment. Understanding these rights is essential for anyone considering or currently operating under franchisee agreements.
Financial Transparency and Marketing Funds
One of the most important aspects of the franchisee code of conduct relates to financial transparency, particularly regarding marketing funds. If you contribute to a marketing fund, you have the legal right to receive detailed annual financial statements. Under new franchisee laws, these statements must be provided within 4 months after the end of the financial year, include sufficient detail of all receipts and expenses, be audited by a registered company auditor, and be delivered to you within 30 days of preparation.
The franchisee code of conduct strictly regulates how marketing fees can be used. Your contributions can only be spent on expenses that are disclosed in the disclosure document, constitute legitimate advertising expenses, are agreed upon by the majority of franchisees, or pay reasonable costs of administering and auditing the marketing fund. This protection ensures your marketing contributions are used appropriately and transparently.
Ongoing Disclosure of Material Facts
Franchisee laws in Australia require ongoing transparency throughout your franchise relationship. The franchisor must disclose any material facts not mentioned in the original disclosure statement within 2 weeks of learning about them. Material facts include significant changes such as changes in majority ownership or control of the franchise system, criminal or civil legal judgements against the franchisor, and changes in intellectual property ownership or control. This ongoing disclosure requirement ensures you’re never blindsided by significant changes that could affect your business.
End of Term and Renewal Rights
When your franchise term approaches its end, the franchisee code of conduct provides specific protections. The franchisor must provide written notice if they plan to extend or enter into a new agreement. For terms of 6 months or longer, you must receive at least 6 months’ notice before the end of your term. For terms less than 6 months, you must receive at least 1 month’s notice. These provisions give you adequate time to plan your business future, whether that means negotiating a renewal, preparing to exit, or exploring other opportunities.
Protection from Unfair Contract Terms
New franchisee laws include strong protections against unfair contract terms in franchisee agreements. Franchisors cannot include clauses that release them from liability toward you or waive any verbal or written representations they’ve made. These protections ensure that franchisors remain accountable for their promises and obligations throughout your franchise relationship.
Fair Dispute Resolution
The franchisee code of conduct establishes a fair dispute resolution process. Any mediation or court action must occur in the state or territory where you’re located, ensuring you’re not forced to travel interstate to resolve disputes. Mediation costs must be split equally with the franchisor, and any clauses attempting to override these protections have no legal effect.
You have formal dispute management rights under franchisee laws in Australia. You can send written notice to the franchisor detailing the nature of the dispute, your desired outcome, and proposed resolution. If the dispute remains unresolved within 3 weeks, either party may refer the matter to a mediator. This structured process helps resolve conflicts efficiently while protecting your rights.
Cooling-Off Period and Termination Rights
One of the most valuable protections in new franchisee laws is the cooling-off period. You may terminate your franchise agreement within 7 days of entering into the agreement or making any payment under the agreement. If you exercise this right, the franchisor must refund your money within 14 days. This gives you a final opportunity to reconsider your decision without financial penalty.
If the franchisor wants to terminate your agreement, they must provide reasonable written notice. If termination is due to a breach, they must explain how to remedy the breach and provide reasonable time to do so, giving you the opportunity to correct issues before losing your franchise.
Capital Expenditure and Transfer Protections
The franchisee code of conduct prevents franchisors from requiring unreasonable capital expenditures. You cannot be forced to make significant capital investments unless they’re outlined in the disclosure document, paid by all or the majority of franchisees, required to comply with legislative obligations, or necessary to improve the business.
When you want to transfer your franchise, the franchisor must respond in writing indicating whether they agree. If they don’t agree, they must provide specific reasons. If they do agree, they must outline any conditions that need to be met. This transparency requirement prevents arbitrary refusals and ensures fair treatment.
Protecting Your Franchise Investment
Understanding franchisee laws in Australia and the franchisee code of conduct is essential for anyone entering into franchisee agreements. These regulations provide comprehensive protections, from mandatory disclosure requirements to dispute resolution processes and restrictions on unfair contract terms.
The legal requirements of entering into a franchise agreement are specifically designed to ensure transparency and fairness in the franchise relationship. New franchisee laws continue to strengthen these protections, recognizing the significant investment that franchisees make in their businesses.
By thoroughly understanding what are the legal requirements of entering into a franchise agreement and your ongoing rights under the franchisee code of conduct, you can make informed decisions, protect your investment, and build a successful franchise business with confidence.
