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Information that franchisors must disclose
The Franchising Code of Conduct sets out rules for the information and documents franchisors must disclose.
These rules can be dependent on the franchise system, financial circumstances, and the start date of a franchise agreement.
Some information and documents must be:
- disclosed at specific times and in certain circumstances
- prepared in a particular format
- verified or updated by annual deadlines
- updated in specific situations
- disclosed when certain information changes.
If you’re a franchisor, it’s important you understand your disclosure obligations. Failure to comply may lead to penalties.
Before entering a franchise agreement
All franchisors must create a franchise profile and publish business information on the Franchise Disclosure Register.
When a prospective franchisee expresses interest, franchisors must disclose certain information and give certain documents to them.
Franchisors must give:
- the information statement, before any other document and within 7 days after interest is expressed
- the franchise agreement, this includes any existing franchise agreement being transferred to a new franchisee
- the franchise disclosure document
- a copy of the Franchising Code of Conduct.
Depending on the circumstances, the franchisor must also disclose:
- earnings information that is accompanied by a statement saying that, to the best of the franchisor’s knowledge, it is accurate except for information it specifies is not accurate. Earnings information includes historical earnings data for the franchise system or a franchised business, and projected earnings for a franchised business. If franchisors are not giving earnings information, they must tell franchisees this at Item 20 of the disclosure document.
- leasing information, if the franchisee is leasing or occupying premises from the franchisor or its associate.
- copies of any other agreements that a franchisee or people involved in the franchisee business, such as directors, have to enter into as a condition of the franchise agreement, such as a confidentiality agreement, hire purchase agreement, guarantee or loan agreement.
Franchisors need to tell prospective franchisees to get independent advice. This is usually from a lawyer, business adviser and accountant.
Disclosure period
After receiving the documents in their final form, there is a mandatory 14-day waiting period. Franchisors and prospective franchisees cannot enter a franchise agreement during this period.
The 14-day period also applies to transferring an existing agreement to a new franchisee.
If you’re a prospective franchisee, you should use this time to read the documents and consider if the franchise is right for you.
Opting out of receiving the disclosure document
In some situations, a prospective franchisee can give written notice to opt out of receiving the disclosure document and a copy of the franchising code.
A prospective franchisee can only opt out when they:
- have recently had the same or a substantially similar agreement with the same franchisor, or
- currently have the same or a substantially similar agreement with the same franchisor.
If you’re a prospective franchisee, you should be cautious of opting out of receiving the disclosure document. There may be important changes to the disclosure document since it was last provided to you.
During a franchise agreement
During the franchise agreement, franchisors must disclose certain information and give certain documents to franchisees.
A franchisor must give a franchisee a current disclosure document after receiving a written request from the franchisee.
When a franchisee pays into a specific purpose fund, such as a marketing fund, franchisors must disclose specific information and give certain documents to them.
The franchisor must give the franchisee copies of leases and other agreements in certain circumstances, including:
- where there is a lease, sub-lease or occupancy agreement between franchisor or franchisee for the franchise premises
- security or confidentiality agreements.
When these are due depends on the type of agreement.
Materially relevant facts
Franchisors must tell prospective and current franchisees about materially relevant facts.
Materially relevant facts are set out in the franchising code and include:
- changes of owner, person or entity who controls the franchisor or franchise system
- legal proceedings and judgments involving the franchisor or its directors and associates
- insolvency events
- changes to intellectual property important to the franchise.
Some materially relevant facts are in the disclosure document. This includes financial details that are in:
- a solvency statement
- financial reports
- an independent audit report.
If a materially relevant fact occurs or changes and is not in the disclosure document, franchisors must:
- tell franchisees in writing within 14 days of becoming aware of the fact
- tell prospective franchisees about new facts that relate to the franchisor’s financial details as soon as possible
- give prospective franchisees new documents that reflect the change before they sign a franchise agreement.
Summary of disclosure obligations
Summary of disclosure obligations for each document and information
| Document or information | Franchisor disclosure obligation |
|---|---|
| Franchise Disclosure Register |
New franchisors must join the register at least 14 days before entering into any franchise agreements. Confirm or update the information each year by the due date. |
| Information statement | Give to prospective franchisees within 7 days of them showing interest and before giving them any other documents |
| Franchise agreement |
Give to prospective franchisees at least 14 days before entering into a franchise agreement. The franchise agreements must comply with the franchising code at the time it is entered, extended or renewed. |
| Franchising Code of Conduct copy | Give to prospective franchisees at least 14 days before entering into a franchise agreement. |
| Disclosure document |
Give to:
The disclosure document must comply with the franchising code at the time it is given to a prospective franchisee. Update:
|
| Changes to materially relevant facts |
Disclose to:
|
| Other agreements that must be entered into |
If relevant, give to:
|
| Leasing agreements and additional related information |
If relevant, give to:
|
| Specific purpose fund statements |
If there is a specific purpose fund, prepare each year within 4 months of the end of the financial year. Give to the franchisees that contribute to the fund within 30 days after preparing. |
Summary of disclosure obligations by stage and situation
| Stage or situation | Franchisor disclosure obligation |
|---|---|
| Someone shows interest in the franchise | Within 7 days of interest being shown, give the prospective franchisee the information statement. This must be done before giving them any other documents. |
| Before entering, selling or transferring a franchise agreement |
New franchisors must have joined the franchise disclosure register. At least 14 days before entering into a franchise agreement, franchisors must give the prospective franchisee:
|
|
Each year |
Check the due date for each document. Update the disclosure document. The due date for the annual update depends on several factors. Verify or update profile in the Franchise Disclosure Register by the due date. Prepare the specific purpose fund statements by the due date. Within 30 days after preparing, give the statements to the franchisees that contribute to the fund. |
| When there is a change to materially relevant facts |
Review and update the disclosure document for accuracy and to reflect the change. Disclose the new fact to franchisees in writing within 14 days of becoming aware of the change. Disclose new facts that relate to the franchisor’s financial details to prospective franchisees as soon as possible. Give prospective franchisees new documents that reflect the change before they sign a franchise agreement. |
| When extending or renewing a franchise agreement | Give the franchise agreement to the franchisee. It must comply with the franchising code. |
| Leasing agreement is signed or when there is occupation (if there is no agreement) |
Give the leasing agreement and additional related information to the franchisee within one month after signing the agreement or there is occupation (if there is no agreement). |
| When other agreements become available | Give the other agreements to prospective franchisees and franchisees. |
| Receive a request from franchisee for the leasing agreement |
Within 7 days of receiving the request, give the franchisee the leasing agreement and additional related information. |
| Receive a request from franchisee for disclosure document |
Within 2 months of receiving the request, give the franchisee the disclosure document. They have a right to request a copy once every 12 months. |
Rules around misleading or deceptive information
Franchisors must not give franchisees or prospective franchisees misleading or deceptive information.
Franchisors should make sure the information they disclose:
- is true
- can be substantiated
- does not omit important information.
Record-keeping obligations for franchisors
Franchisors must understand their record-keeping obligations. Failure to comply may lead to penalties.
Franchisors must keep records of:
- all information disclosed to a franchisee or prospective franchisee in writing
- any documents given to a franchisee or prospective franchisee
- any document used to support a statement or claim in a disclosure document given to a franchisee or prospective franchisee.
Franchisors must keep these records for at least 6 years after giving them to a franchisee or prospective franchisee.
Records of supporting documents must be kept for at least 6 years after the disclosure document was most recently given to a franchisee or prospective franchisee.