Marketing fees & capital expenditure
Dealing with marketing and advertising fees
If you operate a marketing fund, the Code imposes certain restrictions on how you deal with the marketing and advertising fees contributed to that fund.
Firstly, you must maintain a separate bank account for marketing and advertising fees. You must also contribute to the fund on the same basis as other franchisees for each company-owned store that you operate.
Marketing and advertising fees may only be used to meet expenses that:
- have been disclosed in the disclosure document
- are legitimate marketing or advertising expenses
- have been agreed to by a majority of franchisees or
- reflect the reasonable costs of administering and auditing the fund.
Significant capital expenditure
During the term of a franchise agreement you must not require a franchisee to undertake significant capital expenditure. The Code does not define what ‘significant capital expenditure’ means.
However, a franchisor can require franchisees to incur expenses where the expenditure:
- was disclosed to the franchisee in the disclosure document that they received before entering into, renewing, or extending their franchise agreement
- will be incurred by a majority of franchisees and a majority of those franchisees approve the expense
- is necessary to comply with legislative obligations
- has been agreed to by the franchisee
- is considered necessary by the franchisor as a capital investment in the franchised business, justified by a statement which sets out the:
- rationale for making the investment
- amount of capital expenditure required
- anticipated outcomes and benefits
- expected risks associated with the investment.