This paper will focus on the affects of the new Code on the terms and conditions of franchise agreements and the content of disclosure documents. These comments are made in relation to the exposure draft of the revised Code that was released on 1 April 2014. The exposure draft has received extensive feedback and comments from the franchise industry and I expect that some aspects of the new Code will be amended prior to its introduction.
Changes impacting on franchise agreements
The new Code is proposed to take effect on 1 January 2015. Franchise agreements entered into on or after 1 January 2015 (including renewed agreements) will be subject to the new Code. Franchise agreements entered into before the new Code’s introduction will be regulated by the existing Code. This means that franchisors will be complying with two regulatory regimes which will operate concurrently.
The starting point regarding the changes brought about by the new Code is firstly a review of the current definitions and deeming provisions that might be in the franchise agreement. This is to make sure that the definitions are firstly consistent with the provisions of the new Code, and secondly that they are not inconsistent with or in contravention of the Code. Some examples include:
- Franchise agreements should be reviewed to amend how the Code is defined. The new Code will be an industry code within the Competition and Consumer (Industry Codes – Franchising) regulation and should be described as such.
- Franchise agreements should also be reviewed to identify whether there are any provisions which limit or exclude a franchisor’s obligation to act in good faith, or whether it incorporates any provision of any other document that purports to have that effect. Clause 7 (4) of the new Code provides that any clause that seeks to limit or exclude the obligation to act in good faith will be of no effect.
- Clauses in franchise agreements that state a franchisor may act or give consent at its absolute discretion (and exclude any suggestion that consent must not be unreasonably withheld) should be reviewed carefully to make sure they do not go so far as to be construed as clause limiting the franchisor’s obligation to act in good faith (potentially making the whole clause unenforceable). That type of clause may need to be amended to at least provide that it is subject to the franchisor’s obligation to act in good faith. Whilst the new Code recognises that a party may act in a way to protect its own legitimate commercial interests, clauses such as this should be considered carefully.
For a more in-depth analysis of specific changes affecting your Franchise Agreement, as well as a detailed look at changes required to Disclosure Documents, please download our full length paper here: Changes to the Franchising Code by Peter McLaughlin.
If you have any questions regarding the changes to the Franchising Code of Conduct and how this may impact upon your business, you are welcome to contact Peter McLaughlin at firstname.lastname@example.org or phone our office on (07) 3223 6100 for an obligation free discussion.