Franchising Code of Conduct

Riba Business Lawyers

Franchising Code of Conduct

 

The Franchising Code of Conduct attempts to enhance Franchisee rights.

Franchisees have had enhanced support under the Franchise Code of Conduct since 2015:

1. Franchisors must provide a short information for sheet to intending franchisees which gives an overview of the risks and benefits of Franchising.  The statement will include information about:

  • unforseen capital expenditure
  • the need for due diligence
  • the possibility of franchise failure

2. Online trading of the Franchisor must be disclosed

3. Franchisors must remind franchisees of their entitlement to a current disclosure document.

4. The franchisor must if the Franchisee does not hold the lease, provide details of any incentives.

Marketing Funds

  • franchisors must reveal the kinds of expenses that can be paid for from the fund
  • franchisees have the right to vote for an annual audit of the fund
  • the marketing funds must be kept in a separate account.

Balance of Power between Franchisees and Franchisors

1. Franchisors must not impose significant capital expenditure upon franchisees unless:

  • that expenditure is disclosed in the Franchise agreement or
  • a majority of franchisees in a system agree to the expenditure or
  • the expense is necessary and is justified by a statement which sets out the rationale, the cost and the details of the benefits to be derived.

2. It is not possible to require a franchisee to pay the franchisors costs associated with the dispute resolution process, nor may a franchisor require any dispute resolution to take place outside the state in which the franchisee operates.

3. Franchisors must not impose unreasonable restraints on Franchisees. Prior to the implementation of these changes in 2015 a franchisee might have been prevented from benefiting from the good will which the franchisee helped to create. The door will now be opened to the possibility of a franchisee operating a similar business after the end of the franchise agreement.   Franchisors should consider strategies  to assist protect the good will of their franchise system.

4. Corporate Stores and Operations of the Franchisor cannot benefit from the Marketing fund unless they are contributing to that fund.

5. An obligation of good faith is imposed upon both parties to the Franchise Agreement.

6. The consequences of a serious breach of the Code may result in large fines in the tens of thousands of dollars

Riba Business Lawyers

 

 

No Comments

Post A Comment