Latest franchising review likely to lead to more improvements

Last month the Australian Government publicly released a report detailing the independent review into the franchising sector in Australia.  The background that led to the commissioning of the report, and links to the report itself, can be found here.

 

The report makes 18 recommendations.  The aim being to recommend ways of simplifying and improving the clarity of regulations governing franchising.

 

So, what does the report recommend?  Some recommendations are:

• amending the Code so franchisors when informing a franchisee of its decision to renew or enter a new franchise agreement, the franchisor must also provide a disclosure document at the same time
• modifying parties’ obligations to act in good faith (this also includes during negotiations as well as during the term of the agreement).
• additional and tighter controls on marketing funds, including such funds be held in trust (many franchise agreements require franchisees to make regular financial contributions, additional to other franchise fees, to a central marketing fund controlled by the franchisor that’s meant to be applied for that purpose)
• the Code be amended to require franchisors to provide prospective franchisees with a short summary of the key risks and matters they should be aware of when going into franchising (generally, would seem to be a good idea, providing it doesn’t result in generic and convoluted overly technical disclaimers that is likely to discourage prospects from reading these, rather than to take the time to aware of and consider the usual business risks so an informed decision is made)
• amending the Code so franchisors are prohibited from imposing unreasonable significant unforeseen capital expenditure on franchisees (I’ve seen this happen far too often over the years, even cases where a prospect was “assured” there was no foreseen capital expenditure required, only to be hit with such requirement within weeks, or less, of entering a franchisee agreement)
• amending the Code so that franchisors are prohibited, in the absence of a court order, from making franchisees being responsible for certain legal costs in a dispute resolution process and, interestingly, requiring franchisees to conduct their court case outside the jurisdiction, or State, in which the franchisee’s business operates.
• amending the Code regarding the transfer, renewal or end of a franchise agreement so that a franchisee must provide all information reasonably required by the franchisor when making the request for consent to transfer/sell or renew, but franchisors will not be deemed to have consented until 6 weeks after receiving all such information to enable it to properly evaluate the request (without more clarification I’m unsure here; this could enable a franchisor , intentionally or not, to delay or frustrate a franchisee’s request using the excuse the franchisee hasn’t yet provided all the required info).

The Franchising Code of Conduct and Australian franchising has been reviewed several times since the Code first came into existence in 1998.  Overall, it appears to have resulted in a highly regulated framework in the Australian business format franchising system relative to comparable other counties.

Then again, it’s probably fair to say too, that it’s likely why we have a world leading regulatory but successful and balanced framework for such.  If you’re interested in reading more about previous comments I’ve made on this subject, click here.

 

Meanwhile, let’s see what recommendations from this latest review will be implemented by this or the next Australian government.