This is a mandatory industry code under the Competition and Consumer Act 2010 regulated by the Australian Competition & Consumer Commission (ACCC). Both franchisors and franchisees must comply.

The Code covers areas including:

• good faith
• disclosure
• franchise agreements
• termination
• dispute resolution.

Good faith

Both the franchisor and the franchisee are required to act in good faith by adopting an honest, fair and co-operative approach.

The franchise agreement

The contract that sets out the agreement between the franchisor and franchisee. It should provide clear details of your rights, responsibilities and obligations, and also the obligations of the franchisor.

Termination

If the franchisee has breached the agreement, the franchisor must give usually not less than 30 days written notice of the breach and set out what the franchisee needs to do to rectify the breach. If the breach is not rectified, the franchisor may terminate the agreement.

Dispute resolution

The Code sets out that franchisors must have an internal dispute resolution process. The nature of the dispute must be put in writing to the other side with an outline of the preferred outcome and the action necessary to settle the dispute.

If this doesn’t work, further options include arbitration, mediation and conciliation, usually with the help of impartial intermediary. 

The Code does not prevent either party from taking legal action, though this should always be a last resort, not least because it can be very expensive.

Disclosure

A franchisor must provide a disclosure document to anyone considering entering into, renewing or extending a franchise agreement. 

One of the most important elements of the franchise agreement, the disclosure document is designed to provide a potential franchisee with all the information they need to make a reasonable decision about joining the franchise system and there are ongoing obligations of disclosure during the franchise term.

You should expect to find in the disclosure document the following details:

• details of how and when you can contact the franchisor 
• information about the franchisors’ directors and executive team and any associated entities (there may be a company that holds the IP, or a supplier related to the franchisor, for example)
• contact details of franchisees who have left the franchise and if they were terminated, and if so why
• the number of franchised businesses that were transferred, ceased to operate, were terminated by either the franchisor or franchisee, did not extend their agreement or were bought back by the franchisor
• any ongoing litigation or disputes
• a statement, signed by a director, that they have reasonable grounds to believe franchise will be able to pay debts as they fall due
• the franchisor’s financial reports for the past two years or, if the franchise hasn’t been operating that long, a statutory declaration of solvency by a director with a supporting report from an independent auditor.
• details of who owns the franchisor’s intellectual property and how the franchisee is permitted to use it  
• details of the term of the agreement and any options for renewal 
• up-front establishment costs and recurring fees 
• details of any rebates the franchisor receives from suppliers and if they are passed on to the franchisee.
• details of any lease or occupancy licence requirements
• details as to online sales and sharing of that revenue.

Which other documents do you need?

Depending on the franchise, you might need some or all of these documents. These should all be provided to you with the disclosure document and the form of the franchise agreement that you are to sign.

• An information sheet (this is a standard form issued by the ACCC) explains the risks and rewards of franchising and the due diligence recommended before the potential franchisee decides whether to go ahead with the purchase.
• Lease documents. Many franchisees operate out of premises that are leased, either directly or through the franchisor.
• Licence agreements related to areas such as intellectual property.
• A security agreement will include any guarantees, mortgages, loans or hire purchase agreements. 
• A no-compete agreement stipulates that the franchisee won’t compete with a similar business for a specified time after leaving the brand.
• A confidentiality agreement requires the franchisee to agree not to share any information relating to the franchise.
• Other related agreements with third-party providers, such as a hosting company regarding software used.

It is highly recommended you seek expert legal advice on the documents as a franchise lawyer will know what specific issues to highlight for you to limit your risk.