Franchising agreements can go for a long time and there are obligations on both sides.
Franchisors are obliged to give franchisees certain information and documents during a franchise agreement. This includes the disclosure document if franchisees ask for it.
Franchisors must tell franchisees about:
Changes to the franchise that are materially relevant
During a franchise agreement, franchisors must keep franchisees up to date about certain important information that the code calls materially relevant facts.
Changes in ownership of the franchise
Franchisors should keep franchisees informed if they are selling or leaving the franchise.
A materially relevant fact that franchisors have to tell franchisees about is a change in:
- majority ownership or
- control of the franchisor, an associate of the franchisor, or the franchise system.
Activity and operations of a marketing fund
If a franchisor asks franchisees to pay money into a marketing fund, the code has rules about paying into the fund and how the fund can be used.
Franchisors have to tell franchisees about:
- the money that goes into and out of the marketing fund each financial year. This information is given to franchisees in an annual marketing fund statement.
- how they operate the marketing fund. This information must be included in the disclosure document.
Franchisors must give franchisees certain information if they are occupying or leasing premises for their franchise from the franchisor or an associate of the franchisor. This includes telling the franchisee about any incentives or financial benefits that the franchisor or associate of the franchisor is entitled to because of a lease arrangement.
Changes due to events such as COVID-19
Unprecedented events such as COVID-19 means change happens quickly for some franchisors.
Franchisors must keep franchisees informed of changes due to COVID-19 or other events, and should not wait for annual disclosures to disclose certain information.
Franchisors must not engage in misleading and deceptive conduct or unconscionable conduct during the franchise agreement. This also applies to franchisees when dealing with consumers.
Both parties must act in good faith during the franchise agreement.
The franchise agreement must be followed by both parties. The franchisor can’t change the agreement unless the franchise agreement allows it or the franchisee agrees to the change.
The franchisor can’t interfere with franchisees associating with each other. This includes bargaining together and is a protection that franchisees have under the code.
Two or more franchisees may also want to come together to negotiate with their franchisor about terms, conditions and prices. This is collective bargaining.
Bargaining as a group can risk breaching competition laws. There are different ways that franchisees can get legal protection from the ACCC if they decide that they want bargain together.
If you are looking for information about what happens if franchisees want to sell their business or what happens at the end of a franchise term, see extending or ending a franchise agreement.